[Federal Register Volume 64, Number 130 (Thursday, July 8, 1999)]
[Proposed Rules]
[Pages 36978-36999]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-17160]



[[Page 36977]]

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Part II





Department of Agriculture





_______________________________________________________________________



Food and Nutrition Service



_______________________________________________________________________



7 CFR Parts 250 and 251



Food Distribution Programs: Implementation of the Personal 
Responsibility and Work Opportunity Reconciliation Act of 1996 (Welfare 
Reform); Proposed Rule

  Federal Register / Vol. 64, No. 130 / Thursday, July 8, 1999 / 
Proposed Rules  

[[Page 36978]]



DEPARTMENT OF AGRICULTURE

Food and Nutrition Service

7 CFR Parts 250 and 251

RIN 0584-AC49


Food Distribution Programs: Implementation of the Personal 
Responsibility and Work Opportunity Reconciliation Act of 1996 (Welfare 
Reform)

AGENCY: Food and Nutrition Service, USDA.

ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: This rule proposes to amend provisions of the Food 
Distribution Program regulations and the Emergency Food Assistance 
Program (TEFAP) regulations to implement the Personal Responsibility 
and Work Opportunity Reconciliation Act of 1996, commonly known as 
Welfare Reform, while generally streamlining and clarifying these 
regulations. In accordance with the Welfare Reform legislation, the 
proposals contained in this rule would address various changes required 
by the repeal of Section 110 of the Hunger Prevention Act of 1988, 
which authorized the former Soup Kitchens/Food Banks Program, the 
former beneficiaries of which are now served by an expanded TEFAP. It 
amends the definitions relating to organizational eligibility in TEFAP 
to reflect the program consolidation, and to achieve consistency with 
the Emergency Food Assistance Act of 1983 as amended by Welfare Reform. 
Changes to these and other definitions are also proposed in order to 
provide greater clarity to the regulations. As mandated by Welfare 
Reform, this rule also proposes changes in the required content and 
frequency of submission of the TEFAP State plan of operation, and 
encourages State agencies to create advisory boards comprised of public 
and private entities with an interest in the distribution of TEFAP 
commodities. In addition, this rule proposes to broaden the allowable 
uses of TEFAP administrative funds at the State and local levels, and 
provide greater flexibility for State agencies in meeting the TEFAP 
maintenance-of-effort requirement. Finally, in order to reduce the 
paperwork burden and afford State agencies greater flexibility, this 
rule proposes discretionary changes in TEFAP recordkeeping, monitoring, 
and reporting requirements.

DATES: To be assured of consideration, comments must be postmarked on 
or before September 7, 1999.

ADDRESSES: Comments should be sent to: Lillie Ragan, Assistant Branch 
Chief, Household Programs Branch, Food Distribution Division, Food and 
Nutrition Service, U.S. Department of Agriculture, Room 612, 4501 Ford 
Avenue, Alexandria, Virginia 22302. Comments in response to this rule 
may be inspected at 4501 Ford Avenue, Room 612, Alexandria, Virginia, 
during normal business hours (8:30 a.m. to 5 p.m., Mondays through 
Fridays).

FOR FURTHER INFORMATION CONTACT: Lillie Ragan at the above address or 
telephone (703) 305-2662.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

    This proposed rule has been determined to be not significant for 
purposes of Executive Order 12866 and, therefore, has not been reviewed 
by the Office of Management and Budget.

Regulatory Flexibility Act

    This action has been reviewed with regard to the requirements of 
the Regulatory Flexibility Act of 1980 (5 U.S.C. 601-612). The 
Administrator of the Food and Nutrition Service (FNS) has certified 
that this action will not have a significant economic impact on a 
substantial number of small entities. The procedures in this rulemaking 
would primarily affect FNS regional offices, and the State distributing 
and recipient agencies that administer food distribution programs. 
Private enterprises that enter into agreements for the storage of 
donated food or meal service management would also be affected. While 
some of these entities constitute small entities, a substantial number 
will not be affected. Furthermore, any economic impact will not be 
significant.

Unfunded Mandate Reform Act

    Title II of the Unfunded Mandate Reform Act of 1995, Public Law 
104-4 (UMRA), establishes requirements for Federal agencies to assess 
the effects of their regulatory actions on State, local, and tribal 
governments and the private sector. Under section 202 of the UMRA, FNS 
generally must prepare a written statement, including a cost-benefit 
analysis, for proposed and final rules with ``Federal mandates'' that 
may result in expenditures to State, local or tribal governments, in 
the aggregate, or to the private sector, of $100 million or more in any 
one year. When such a statement is needed for a rule, section 205 of 
the UMRA generally requires FNS to identify and consider a reasonable 
number of regulatory alternatives and adopt the least costly, more 
cost-effective or least burdensome alternative that achieves the 
objectives of the rule.
    This rule contains no Federal mandates (under the regulatory 
provisions of Title II of the UMRA) for State, local, and tribal 
governments or the private sector of $100 million or more in any one 
year. Thus this proposed rule is not subject to the requirements of 
sections 202 and 205 of the UMRA.

Executive Order 12372

    These programs are listed in the Catalog of Federal Domestic 
Assistance under 10.550, 10.568 and 10.569 and are subject to the 
provisions of Executive Order 12372, which requires intergovernmental 
consultation with State and local officials (7 CFR part 3015, Subpart V 
and final rule-related notices published at 48 FR 29114, June 24, 1983 
and 49 FR 22676, May 31, 1984).

Executive Order 12988

    This proposed rule has been reviewed under Executive Order 12988, 
Civil Justice Reform. This rule is intended to have preemptive effect 
with respect to any State or local laws, regulations or policies which 
conflict with its provisions or which would otherwise impede its full 
implementation. This rule is not intended to have retroactive effect 
unless so specified in the ``Effective Date'' section of the preamble. 
There are no administrative procedures which must be exhausted prior to 
any judicial challenge to the provisions of this rule or the 
application of its provisions.

Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
3507), FNS is submitting for public comment the changes in the 
information collection burden that would result from the adoption of 
the proposals in the rule.
    Comments are invited on: (a) Whether the proposed collection of 
information is necessary for the proper performance of the functions of 
the agency, including whether the information will have practical 
utility; (b) the accuracy of the agency's estimate of the burden of the 
proposed collection of information, including the validity of the 
methodology and assumptions used; (c) ways to enhance the quality, 
utility, and clarity of the information to be collected; and (d) ways 
to minimize the burden of the collection of information on those who 
are to respond, including through the use of appropriate automated, 
electronic, mechanical, or other technological collection techniques or 
other forms of information technology. To be assured of

[[Page 36979]]

consideration, comments must be postmarked on or before September 7, 
1999. Comments may be sent to Lori Schack, Desk Officer, Office of 
Information and Regulatory Affairs, Office of Management and Budget 
(OMB), Washington, D.C. 20503. All comments will be summarized and 
included in the request for OMB approval of the proposed changes in the 
information collection burden. All comments will become a matter of 
public record. For further information, or for copies of the 
information collections discussed below, please contact Lillie Ragan, 
Assistant Branch Chief, Household Programs Branch, Food Distribution 
Division, Food and Nutrition Service, U.S. Department of Agriculture, 
Room 612, 4501 Ford Avenue, Alexandria, Virginia 22302, or telephone 
703-305-2662.
    Title: Food Distribution Regulations and Forms.
    OMB Number: 0584-0293.
    Expiration Date: 1/31/01.
    Type of Request: Revision of a currently approved collection.
    Abstract: State plans of operation, household participation 
reports, monitoring reviews, and review reports. The rule proposes to: 
(1) require State agencies to submit the TEFAP plan of operation to FNS 
only once every four years instead of the present annual requirement, 
with amendments made as necessary; (2) eliminate the requirement that 
State agencies report semiannually the number of households served 
through TEFAP; (3) reduce the number of TEFAP agencies required to be 
reviewed each year by State agencies from one-third or 50, whichever is 
fewer, to one-tenth or 20, whichever is fewer; and (4) require State 
agencies to submit review reports to TEFAP agencies they review only if 
a review discloses deficiencies.

Plans of Operation

    Section 202A(a) of the Emergency Food Assistance Act of 1983 (7 
U.S.C. 612c note (EFAA), as amended by Section 871(b) of the Personal 
Responsibility and Work Opportunity Reconciliation Act of 1996, Pub. L. 
104-193, (Welfare Reform), mandates that each State agency submit 
certain information to FNS in a TEFAP State plan of operation once 
every four years. Present regulations specify an annual submission of 
the State plan. Changes made by Welfare Reform in the required contents 
of the plan and implemented by this rule are discussed below. It is 
expected that changes in the amount of time required to prepare the 
plan will be negligible. Thus, for the purposes of the calculations 
below, response times are unaltered. The proposed decrease in burden 
hours reflects only the decreased frequency of response.
    Respondents: State agencies administering TEFAP.
    Estimated Number of Respondents: State agencies administering TEFAP 
number 56.
    Estimated Number of Responses per Respondent: Frequency of response 
for the States to submit plans would be every four years, or at a 
frequency of 0.25 per year.

Household Participation Reports

    Present regulations require State agencies to report household 
participation figures on the FNS-155, Inventory Management Report, 
semiannually. This rule proposes to eliminate this requirement, thus 
reducing the time required for completion of the FNS-155.
    Respondents: State agencies administering TEFAP.
    Estimated Number of Respondents: State agencies administering TEFAP 
number 56.
    Estimated Number of Responses per Respondent: Frequency of response 
for State agencies to submit the FNS-155 remains 2 per year, but 
household participation reports would no longer be included, reducing 
this component of the FNS-155 burden to zero.

Review Reports Submitted to Emergency Feeding Organizations

    This rule proposes no changes in the present regulatory requirement 
that State agencies annually review 25 percent of all emergency feeding 
organizations, and review all such organizations no less frequently 
than once every four years. Such organizations are, however, renamed 
``eligible recipient agencies which have signed an agreement with the 
State.'' This rule proposes to require State agencies to conduct an 
annual review of one-tenth or 20, whichever is fewer, of eligible 
recipient agencies which have signed an agreement with another eligible 
recipient agency, rather than the current one-third or 50, whichever is 
fewer, of ``distribution sites.'' In addition, this rule proposes to 
require State agencies to submit review reports to those organizations 
reviewed only if the review discloses deficiencies, rather than the 
current requirement that a report be submitted for each review 
conducted. Current specific content requirements for the report would 
be eliminated. These changes are expected to reduce the number of 
reviews State agencies conduct each year, and the number of those 
reviews which will require reports.
    Respondents: State agencies administering TEFAP.
    Estimated Number of Respondents: State agencies administering TEFAP 
number 56.
    Estimated Number of Responses per Respondent: Frequency of response 
for the States to submit reviews to emergency feeding organizations 
would be 1 per year.

----------------------------------------------------------------------------------------------------------------
                                                    Respndnts.         Freq.        Hrs./Resp.      Total hrs.
----------------------------------------------------------------------------------------------------------------
TEFAP State Plan:
    Present.....................................              56            1              19               1064
    Proposed....................................              56            0.25           19                266
Submission of TEFAP Household Participation Data
 on Inventory Reports (FNS-155):
    Present.....................................              56            2               0.25              28
    Proposed....................................              56            2               0.00               0
TEFAP Review Reports Submitted to Eligible
 Recipient Agencies:
    Present.....................................              56            7               2                784
    Proposed....................................              56            1               2                112
----------------------------------------------------------------------------------------------------------------

    Estimated Total Annual Burden on Respondents: The total annual 
burden under OMB Control Number 0584-0293 would be reduced from 
1,190,971 hours to 1,189,473 hours: a difference of 1,498 hours.

Background

    On August 22, 1996, President Clinton signed into law the Personal 
Responsibility and Work Opportunity

[[Page 36980]]

Reconciliation Act of 1996, (hereinafter ``Welfare Reform''). Welfare 
Reform amended legislation authorizing Department of Agriculture 
(hereinafter ``USDA'' or ``Department'') food distribution programs 
operated by FNS. It consolidated the Soup Kitchens/Food Banks Program 
(SK/FB) and TEFAP under the EFAA and repealed previous authorization 
for SK/FB under Section 110 of the Hunger Prevention Act of 1988, Pub. 
L. 100-435, (HPA), (7 U.S.C. 612c note). It also amended the 
definitions regarding organizational eligibility in TEFAP, as contained 
in Section 201A(3) of the EFAA, to ensure that organizations formerly 
served by SK/FB would be eligible to participate in TEFAP. Welfare 
Reform also made changes in the following areas: (1) allowable uses of 
TEFAP administrative funds; (2) content and frequency of submission of 
the TEFAP State plan of operation; (3) the annual date by which TEFAP 
commodities must be delivered to States; (4) the TEFAP maintenance-of-
effort requirement; and (5) the distribution of commodities to aliens.
    To assist State agencies in implementing the provisions contained 
in Welfare Reform, the Department issued a policy memorandum on January 
14, 1997, which was sent to all FNS Regional Offices for dissemination 
to their respective State agencies. The guidance contained in the 
memorandum generated questions from several State agencies concerning 
the eligibility of certain types of organizations to receive TEFAP 
commodities. In response to these questions, the Department once again 
reviewed the legislative provisions and issued additional supplementary 
guidance through a policy memorandum dated July 23, 1997.
    This proposed rule would incorporate Welfare Reform's legislative 
mandates into the appropriate regulations. Changes are also proposed as 
part of the Department's effort to clarify the regulations and reduce 
the burden associated with the administration of TEFAP. With the latter 
goal in mind, this rule proposes changes in TEFAP recordkeeping, 
monitoring, and reporting requirements. Welfare Reform also amended the 
National School Lunch Act to eliminate the requirement that State 
education agencies maintain advisory councils for the purpose of 
advising FNS on schools' needs relative to the selection and 
distribution of commodities, and to instead require that distributing 
agencies consult with representatives of schools on this subject. The 
substance of this provision is being addressed in a separate 
rulemaking, but this rulemaking removes references to the advisory 
councils in Food Distribution Program regulations. Provisions contained 
in Welfare Reform relative to the distribution of commodities to aliens 
which require a change in current regulations will be addressed under a 
separate rulemaking. The specific changes proposed in this rule are 
discussed in detail below.

Absorption of SK/FB into TEFAP

Repeal of Section 110 of the Hunger Prevention Act of 1988
    The major change in Food Distribution Programs brought about by 
Welfare Reform was consolidation of TEFAP and SK/FB. This consolidation 
was accomplished by Section 873(1) of Welfare Reform, repealing Section 
110 of the HPA, which authorized funds specifically for the purchase of 
commodities for SK/FB. Its authorizing legislation repealed, SK/FB 
ceased to exist. This rule proposes to amend current Food Distribution 
Program regulations (7 CFR part 250) by removing Section 250.52, which 
contained the requirements of Section 110 of the HPA, as well as all 
other references to Section 110, wherever they appear, in 7 CFR parts 
250 and 251.
Definitions
    This rule proposes to add definitions of several terms not 
currently found in Section 251.3 and to change the definitions of some 
currently existing terms. The accompanying chart graphically represents 
the existing and proposed definitions in a side-by-side format to 
assist readers in understanding the changes. A detailed explanation of 
the changes follows. It should be noted, however, that neither the 
chart nor the following detailed explanation contain the definitions of 
``formula,'' ``state agency,'' and ``value of commodities 
distributed.'' These definitions are set forth in the proposed 
regulatory text at the end of this rule. Although definitions of these 
terms are contained in the current Section 251.3 and are not proposed 
to be changed, it is easier, given the extensive surrounding additions 
and changes, to set forth the revised text of the section in its 
entirety.

BILLING CODE 3410-30-U-

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[GRAPHIC] [TIFF OMITTED] TP08JY99.003



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[GRAPHIC] [TIFF OMITTED] TP08JY99.004



BILLING CODE 3410-30-C

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    Eligible recipient agency. Accompanying the repeal of Section 110 
of the HPA, Section 871(a) of Welfare Reform slightly altered the 
definition of ``eligible recipient agency'' (ERA) contained in Section 
201A of the EFAA. The alteration emphasizes that organizations formerly 
receiving commodities under SK/FB are eligible to receive TEFAP 
commodities. Soup kitchens and food banks had always been listed as 
eligible recipient agencies under Section 201A of the EFAA and in TEFAP 
regulations, but were not specifically defined, as they were in Section 
110 of the HPA. Most States served soup kitchens exclusively under SK/
FB. In addition to amending the definition of ERA itself, Welfare 
Reform incorporated into Section 201A specific definitions for ``food 
banks'' and ``soup kitchens'' similar to those found in the former 
Section 110 of the HPA. The term ``food pantry'' had never been listed 
or defined in the EFAA; Welfare Reform both added food pantries as a 
type of ERA and added to the EFAA the definition for this term formerly 
found in section 110 of the HPA. The net result of these changes is 
that more detailed and specific authority now exists in the EFAA for 
the distribution of TEFAP commodities to food banks, food pantries, and 
soup kitchens. Therefore, no organization formerly receiving 
commodities under SK/FB lost eligibility for food due to this program 
consolidation.
    Section 871(a) of Welfare Reform amended Section 201A of the EFAA 
to explicitly prohibit the participation of penal institutions in 
TEFAP. It also removed school lunch programs and Commodity Supplemental 
Food Program (CSFP) sites from the list of eligible recipient agencies, 
while not categorically prohibiting their participation. All other 
types of organizations may participate as long as they meet the 
organizational eligibility criteria. While mention of school lunch 
programs as a specific category was removed, child nutrition programs 
as a category remains, and thus school lunch programs remain eligible. 
And while the removal of the reference to CSFP sites means that such 
sites may not receive TEFAP commodities for the sole purpose of serving 
CSFP participants, CSFP sites may receive TEFAP commodities if they 
meet the organizational eligibility criteria described below. The 
result of these changes is that penal institutions are the only type of 
organization which can be termed categorically ineligible for TEFAP. 
Since TEFAP commodities have never, in fact, been provided to penal 
institutions, school lunch programs or CSFP sites, this change has had 
no practical effect.
    Although the changes wrought by Welfare Reform in the definition of 
ERA were minor, the January 14, 1997 guidance memorandum, discussed 
above, generated questions from several State agencies regarding the 
eligibility of certain types of organizations to receive TEFAP 
commodities. Based on an analysis of these questions, it appears that 
much of the need for clarification can be attributed to the fact that 
current TEFAP regulations (7 CFR part 251) do not contain a definition 
of ERA, instead employing the term ``emergency feeding organization'' 
(EFO). Thus, current regulations do not address the distribution of 
commodities to all of the various types of organizations specifically 
encompassed by the definition of ERA as set forth in the EFAA. These 
organizations include summer camps for children, child nutrition 
programs providing food service, nutrition projects operating under the 
Older Americans Act of 1965 (42 U.S.C. 3001 et seq.), and disaster 
relief programs. These organizations have always been eligible to 
receive commodities under the EFAA. However, 7 CFR part 251 does not 
currently address the distribution of TEFAP commodities to such 
organizations because they have traditionally received assistance 
through other commodity programs.
    Another source of misunderstanding appears to be associated with 
the eligibility of certain adult correctional institutions. As 
discussed above, Welfare Reform explicitly prohibits penal institutions 
from receiving TEFAP commodities. Similarly, penal institutions are 
ineligible to receive commodities as charitable institutions under 7 
CFR part 250. However, certain adult correctional institutions are 
eligible to receive commodities that are made available to States for 
distribution to charitable institutions under other donation 
authorities if they meet the requirements for rehabilitation programs 
set forth in Section 250.41(a)(2).
    Therefore, to clarify the types of organizations eligible to 
receive TEFAP commodities, this rule proposes to amend Section 251.3 to 
add the following definition of ERA, which specifically includes all 
the various types of organizations eligible to receive TEFAP 
commodities that are included under the definition of ERA set forth in 
the EFAA: ``eligible recipient agency means an organization which--(1) 
is public, or (2) is private, possessing tax exempt status pursuant to 
Sec. 251.5(a)(3); and (3) is not a penal institution; and (4) provides 
food assistance--(i) exclusively to needy persons for household 
consumption, pursuant to a means test established pursuant to 
Sec. 251.5(b), or (ii) predominantly to needy persons in the form of 
prepared meals pursuant to Sec. 251.5(a)(2); and (5) has entered into 
an agreement with the designated State agency pursuant to Sec. 251.2(c) 
for the receipt of commodities or administrative funds, or receives 
commodities or administrative funds under an agreement with another 
eligible recipient agency which has signed such an agreement with the 
State agency or another eligible recipient agency within the State 
pursuant to Sec. 251.2(c); and (6) falls into one of the following 
categories: (i) emergency feeding organizations (including food banks, 
food pantries and soup kitchens); (ii) charitable institutions 
(including hospitals and retirement homes); (iii) summer camps for 
children, or child nutrition programs providing food service; (iv) 
nutrition projects operating under the Older Americans Act of 1965 
(Nutrition Program for the Elderly), including projects that operate 
congregate nutrition sites and projects that provide home-delivered 
meals; and (v) disaster relief programs.''
    The only material differences between this definition of ERA and 
that contained in the EFAA are intended to render the definition more 
useful to State and local agencies making day-to-day organizational 
eligibility determinations. Language regarding the execution of 
agreements between the State and eligible recipient agencies has been 
added. The term ``needy persons'' and related language have also been 
included, since the EFAA limits the distribution of commodities to 
organizations that provide food assistance to the needy. In addition, 
the proposed rule's ERA definition lists all of the types of EFOs for 
which Welfare Reform provides a specific, separate definition, i.e., 
food banks, food pantries, and soup kitchens. The proposed definition 
of ERA does not, however, limit EFOs to these organizational types, 
because, as discussed below, any type of ERA may qualify as an EFO, as 
long as it meets the criteria.
    Emergency feeding organization. As discussed above, current 
regulations contain no definition of ERA. Instead, the regulations use 
the term ``emergency feeding organization'' and in Section 251.3 define 
it to mean ``any public or nonprofit private organization which has 
entered into an agreement with the designated State agency to provide 
nutrition assistance to relieve situations of emergency and distress 
through the

[[Page 36984]]

provision of food to needy persons, including low-income and unemployed 
persons, and which receives commodities under agreements pursuant to 
Sec. 251.2(c). Emergency feeding organizations include charitable 
institutions, food banks, hunger centers, soup kitchens, and similar 
public or private nonprofit eligible recipient agencies.''
    The program consolidation and the need for greater clarity require 
that the regulatory definition of EFO be revised to further sharpen the 
legislative distinction between ERAs which are also EFOs on one hand, 
and on the other, ERAs which are not also EFOs. This distinction is 
crucial under the consolidated TEFAP, because it forms the basis of the 
priority system discussed below, which State agencies must employ in 
allocating TEFAP commodities. It also affects the requirement that 
State agencies pass down at least 40 percent of their administrative 
grants. This requirement, too, is discussed in detail below. Welfare 
Reform stresses this distinction in Section 201A(1) of the EFAA by 
removing the definition of EFO from within the definition of ERA, and 
providing a separate definition of EFO in Section 201A(4). The proposed 
regulatory definition of EFO removes the present language regarding 
agreements, which is neither included in the EFAA's definition of EFO 
nor necessary to distinguish EFOs from other ERAs. Instead agreements 
are addressed in the definition of ERA, as discussed above. The 
proposed definition of EFO also removes references to types of 
organizations which may or may not qualify as EFOs, likewise confining 
these to the definition of ERA, which is structured to more 
appropriately contain them. This change shifts the emphasis from types 
of organizations to criteria which ERAs must meet to be considered 
EFOs. Under this proposed rule at Section 251.3(e), an EFO would mean 
``an eligible recipient agency which provides nutrition assistance to 
relieve situations of emergency and distress through the provision of 
food to needy persons, including low-income and unemployed persons. 
Emergency feeding organizations have priority over other eligible 
recipient agencies in the distribution of TEFAP commodities pursuant to 
Sec. 251.4(h).'' Examples of EFOs are food banks, food pantries, soup 
kitchens, and organizations such as Community Action Programs that 
distribute TEFAP commodities occasionally, e.g., monthly or quarterly.
    Charitable institution. Section 201A of the EFAA authorizes the 
distribution of TEFAP commodities to charitable institutions. However, 
Section 251.3 does not currently contain a definition of this term. 
While Section 250.3 contains such a definition, it is needlessly 
complex given the limited application the term will have in TEFAP. 
Therefore, this rule proposes to include a definition of ``charitable 
institution'' in Section 251.3 which more accurately describes the 
types of organizations that would be considered eligible to participate 
in TEFAP and alerts the reader to the fact that the definition differs 
from that found in Section 250.3. The following definition of 
``charitable institution'' would be included in this proposed rule: 
``charitable institution (which is defined differently in this part 
than in part 250 of this chapter) means an organization which--(1) is 
public, or (2) is private, possessing tax exempt status pursuant to 
Sec. 251.5(a)(3); and (3) is not a penal institution (this exclusion 
also applies to correctional institutions which conduct rehabilitation 
programs); and (4) provides food assistance to needy persons.''
    Distribution site. Section 251.3(b) of the current regulations 
defines ``distribution site'' as ``the location(s) where the emergency 
feeding organization actually distributes commodities to needy persons 
under this part.'' To reflect the consolidation of SK/FB into TEFAP, 
this rule proposes to revise the definition of ``distribution site'' to 
organizations which prepare meals using TEFAP commodities as well as 
the traditional distribution of commodities to households for home use. 
Also, the proposed definition employs the term ERA, rather than EFO, as 
discussed above, even though in practice, most distribution sites are, 
and will most likely continue to be, operated by organizations 
qualifying as EFOs. Under this proposed rule, ``distribution site'' 
means ``a location where the eligible recipient agency actually 
distributes commodities to needy persons for household consumption or 
serves prepared meals to needy persons under this part.''
    Food bank, Food pantry, Soup kitchen. Provisions regarding the 
distribution of Section 110 commodities as set forth in HPA, including 
the definitions of food banks and soup kitchens, are currently 
contained in 7 CFR part 250. Since Welfare Reform consolidated SK/FB 
into TEFAP, this rule proposes to include the definitions of these 
terms, as slightly revised by Welfare Reform, in Section 251.3 and to 
remove the corresponding definitions from Section 250.3. While the term 
``food pantry'' was also defined in the HPA, the definition was never 
included in either 7 CFR part 250 or 7 CFR part 251. This rule also 
proposes to include in Section 251.3 the definition of ``food pantry'' 
as set forth in Welfare Reform. The changes made by Welfare Reform in 
the definitions of these terms are in all cases non-material. The 
proposed rule sets forth these definitions in Sections 251.3(f), 
251.3(g), and 251.3(j) as follows: ``Food bank'' means ``a public or 
charitable institution that maintains an established operation 
involving the provision of food or edible commodities, or the products 
of food or edible commodities, to food pantries, soup kitchens, hunger 
relief centers, or other food or feeding centers that, as an integral 
part of their normal activities, provide meals or food to feed needy 
persons on a regular basis.'' ``Food pantry'' means ``a public or 
private nonprofit organization that distributes food to low-income and 
unemployed households, including food from sources other than the 
Department of Agriculture, to relieve situations of emergency and 
distress.'' ``Soup kitchen'' means ``a public or charitable institution 
that, as an integral part of the normal activities of the institution, 
maintains an established feeding operation to provide food to needy 
homeless persons on a regular basis.''

Eligible Recipient Agency Eligibility Criteria

    While Section 201A of the EFAA, in its definition of ERA, lists a 
broad array of organizations as eligible to participate in TEFAP, 
Section 202A(b)(4)(A) of the EFAA continues to require that TEFAP 
commodities be used to provide food assistance to those in need. 
Organizations applying to participate in TEFAP which distribute foods 
to households for home consumption meet this criterion by requiring 
that households applying for assistance pass a ``means test,'' i.e., 
the household must meet the TEFAP income eligibility criteria 
established by the State agency. Eligibility cannot be established 
merely on the basis of a household residing within a specific area. 
Organizations which provide food assistance through the preparation of 
meals do not employ a means test because such testing would not be 
cost-effective, and because people who attend soup kitchens can 
reasonably be assumed to be needy. Accordingly, this proposed rule 
would require such organizations to demonstrate that they serve 
predominantly needy people. The State agency can determine if the 
organization meets this criterion by considering the socioeconomic data 
(e.g., poverty, unemployment, vagrancy and welfare

[[Page 36985]]

program usage rates) on the area in which the organization is located, 
or from which it draws its clientele. In the case of most traditional 
soup kitchens, this minimal standard will no doubt be easily and 
clearly satisfied. Application of this criterion will, however, render 
some organizations of a particular type eligible and others of the same 
type ineligible. For example, a hospital which is located in, or draws 
its patients from, an economically distressed area could be considered 
eligible to participate in TEFAP, whereas a hospital located in an area 
with more positive economic characteristics would not qualify. State 
agencies remain free to set a higher standard than ``predominantly,'' 
should they wish to target resources to only their neediest citizens. 
This rule proposes to amend Section 251.5(a) to include these criteria.
    Section 201A(3) of the EFAA continues to require that eligible 
recipient agencies be public or nonprofit organizations, thus 
continuing to exclude for-profit organizations. In order to clarify 
this legislative mandate, this rule also proposes to incorporate within 
part 251 requirements associated with tax-exempt status. Such 
requirements are currently contained in Section 250.52(b) which, as 
discussed above, is removed under this proposed rule as a result of 
Section 110 of the HPA being repealed by Welfare Reform. Under Section 
250.52(b), all organizations receiving Section 110 commodities for 
distribution under the former SK/FB were required to have obtained tax-
exempt status under the Internal Revenue Code (26 U.S.C. 501) (IRC) or 
to have made application for such status. However, under Section 
501(c)(3) of the current IRC, organizations are automatically tax-
exempt if they are ``organized or operated exclusively for religious * 
* * purposes. * * *'' Such organizations are not precluded from seeking 
Internal Revenue Service (IRS) recognition of their tax-exempt status, 
but they are not required to do so. Therefore, the Department does not 
intend to require organizations that are ``organized or operated 
exclusively for religious * * * purposes. * * *'' to obtain tax-exempt 
status in order to participate in TEFAP.
    These tax exempt status requirements of current Section 250.52(b) 
also contain a ``moving toward'' exemption that allows an organization 
which has applied for, but has yet to obtain, IRS recognition of its 
tax-exempt status to receive Section 110 commodities for 12 months from 
the date of its approval for participation in TEFAP, and for an 
indefinite period thereafter, if the organization ``documents to the 
distributing agency's satisfaction that it has made good faith efforts 
to obtain recognition of its tax-exempt status and that such 
recognition has not been provided due to no fault of the 
organization.'' The Department has learned through experience that this 
requirement is not strict enough to be consonant with program 
accountability, and recent legislation has set forth a higher standard. 
Section 107(d) of the William F. Goodling Child Nutrition 
Reauthorization Act of 1998, Pub. L. 105-336, amended Section 17(d)(1) 
of the National School Lunch Act (42 U.S.C. 1766(d)(1)) (NSLA) to limit 
the ``moving toward'' exemption for the Child and Adult Care Food 
Program to ``not more than 180 days, except that a State agency may 
grant a single extension of not to exceed an additional 90 days if the 
institution demonstrates, to the satisfaction of the State agency, that 
the inability of the institution to obtain tax-exempt status within the 
180-day period is due to circumstances beyond the control of the 
institution.'' This rule proposes to amend Section 251.5(a)(3) to add 
tax-exempt requirements consistent with the above discussion. Prior to 
shipping TEFAP commodities, the State agency or ERA would be required 
to ensure that a recipient agency (1) possesses documentation from the 
IRS recognizing tax-exempt status under the IRC, or (2) if not in 
possession of such documentation, is automatically tax-exempt as 
``organized or operated exclusively for religious purposes'' under the 
IRC, or if required to file an application under the IRC to obtain tax-
exempt status, has made application for recognition of such status and 
is moving toward compliance with the requirements for recognition of 
tax-exempt status, or (3) is currently operating another Federal 
program requiring such tax-exempt status. In instances in which an 
organization's application for tax-exempt status is denied or has not 
been obtained within 180 days of the effective date of the 
organization's approval for participation in TEFAP, the State agency or 
ERA must terminate the organization's participation until such time as 
recognition of tax-exempt status is actually obtained. However the 
State agency or ERA may grant a single extension of not to exceed 90 
days if the organization can demonstrate, to the State agency's or 
ERA's satisfaction, that its inability to obtain tax-exempt status 
within the 180 day period is due to circumstances beyond its control.
    In sum, to be eligible to receive TEFAP commodities, organizations 
must be public or nonprofit organizations providing food assistance to 
needy persons. If they distribute commodities for household 
consumption, they must administer a means test to ensure that only 
needy persons receive TEFAP commodities. If they serve prepared meals, 
they must demonstrate that they serve predominantly needy persons. 
State agencies cannot require organizations to conduct a means test of 
individuals receiving prepared meals. Section 871(b) of Welfare Reform 
amended the EFAA to require that State agencies set forth the standards 
of eligibility for ERAs in the State plan. As discussed in detail 
below, this rule proposes to amend Section 251.6(b) to include this 
requirement.
    This rule also proposes to revise Section 251.5 to address those 
instances in which the State agency chooses to delegate authority to 
one or more ERAs to determine which organizations they, in turn, will 
supply with TEFAP commodities. Section 251.5(a) currently requires 
State agencies to determine the eligibility of organizations and enter 
into agreements with such organizations prior to making TEFAP 
commodities available to them. However, in many instances, State 
agencies use ERAs to distribute commodities to other ERAs (e.g., a 
central food bank distributing commodities to one or more food 
pantries) and depend on those organizations to: (1) Determine the 
eligibility of organizations requesting TEFAP commodities from them; 
and (2) to make decisions regarding which organizations will receive 
TEFAP commodities and the amount of commodities to be provided when 
quantities are insufficient to support all requests. This rule proposes 
to revise Section 251.5 to clarify a State agency's authority to 
delegate such responsibilities to ERAs. If a State chooses to do this, 
it must require that such ERAs make decisions regarding an 
organization's eligibility to participate in TEFAP in accordance with 
the provisions contained in 7 CFR part 251 and the State Plan. However, 
responsibility for establishing eligibility criteria for recipient 
agencies may not be delegated to an ERA.

Priority System

    While the explicit priority system outlined in Section 110 of the 
HPA no longer exists, Section 203B(b) of the EFAA requires that, in 
instances in which the State agency cannot meet all requests for TEFAP 
commodities, the State agency give priority in the

[[Page 36986]]

distribution of such commodities to eligible recipient agencies 
``providing nutrition assistance to relieve situations of emergency and 
distress through the provision of food to needy persons, including low-
income and unemployed persons.'' [emphasis supplied] As discussed in 
detail above, this is the definition of EFO as set forth in the EFAA. 
Thus, there is a two-tier priority system. The need to effectively 
describe the priority system is the primary reason for amending the 
regulatory definition of EFO to conform to the EFAA. The two-tier 
priority system provides that organizations which relieve situations of 
emergency and distress through the provision of food to needy persons, 
i.e., EFOs under the definition discussed above, are of higher priority 
and other organizations, which serve the needy, but do not relieve 
situations of emergency and distress and, thus, fall into the lower 
priority category. A State agency may, within the first priority, set 
subpriorities so that, for example, EFOs providing household 
distribution have access to resources before EFOs providing prepared 
meals, or vice versa. However, the needs of all EFOs must be satisfied 
before food is made available to a second-tier organization, i.e., an 
ERA which is not also an EFO. The supply of TEFAP commodities may not 
be sufficient for States to serve all ERAs. Therefore, some State 
agencies may be able to serve only EFOs. This rule proposes to revise 
Section 251.4(h) to reflect the legislatively mandated two-tier 
priority system.
    This rule also proposes to revise Section 251.4(h) to address those 
instances in which the State agency chooses to delegate to ERAs, with 
which the State agency has an agreement, the responsibility for 
choosing ERAs to which they will provide TEFAP commodities. An example 
of this would be a central food bank distributing commodities to one or 
more food pantries. In such instances, the ERA is responsible for 
ensuring that commodities are distributed using the priority system 
described above. Though improbable, given the limited supplies of TEFAP 
commodities, there may be instances in which one ERA has sufficient 
inventories of commodities to serve some second-tier organizations 
while another ERA does not have sufficient inventories to serve all of 
its EFOs. The added expense and administrative complexity necessary to 
prevent this unlikely event would not be justified. Therefore, with 
regard to delegated authority, both the State agency and any ERA to 
which this authority has been delegated will be considered to be in 
compliance with the priority system requirement when the ERA 
distributes TEFAP commodities in a manner that ensures the needs of 
EFOs under its jurisdiction have been met prior to making commodities 
available to non-EFOs under its jurisdiction. The Department would 
expect State agencies and EFOs to be sufficiently knowledgeable about 
the organizations to which they distribute food to avoid substantial 
amounts of commodities being provided to non-EFOs before the needs of 
all EFOs have been satisfied.
    To further assist States in making the best use of TEFAP 
commodities, Section 871(b) of Welfare Reform amended Section 202A of 
the EFAA to require the Secretary to encourage States to establish a 
State advisory board comprised of public and private entities with an 
interest in the distribution of TEFAP commodities. Such advisory boards 
can provide valuable guidance on how the State should allocate 
resources among various eligible outlet types, what areas have the 
greatest need for food assistance, and other important issues that will 
help States use their program resources in the most efficient and 
effective manner possible. This rule proposes to revise Section 
251.4(h) to include language encouraging States to establish an 
advisory board and allowing them to use TEFAP administrative funds for 
its support. Section 203B(b) of the EFAA, besides establishing the 
priority of EFOs, requires that ``[e]ach State agency shall encourage 
distribution of TEFAP commodities in rural areas.'' [emphasis supplied] 
This encouragement is set forth in Section 251.4(k) of present 
regulations and would be retained by this proposed rule. State agencies 
are also reminded that, in accordance with Section 251.4(h) of the 
current regulations, which reflects the provisions contained in Section 
203B(a) of the EFAA, State agencies have the option to give priority to 
existing food bank networks and other organizations whose ongoing 
primary function is to facilitate the distribution of food to low-
income households. This option is, of course, subject to the two-tier 
priority system discussed above.

Recipient Eligibility Criteria

    Section 251.5(b) of the current regulations requires that State 
agencies establish criteria for determining the eligibility of 
households to receive TEFAP commodities for household use. The criteria 
must include income-based standards and the methods by which households 
may demonstrate eligibility under such standards. Criteria may include 
a requirement that the household reside in the State, provided that 
length of residency is not used as an eligibility criterion. Section 
871(a) of Welfare Reform amended Section 202A(b) of the EFAA to require 
that recipients reside in the ``geographic location served by the 
distributing agency at the time of applying for assistance.'' 
Accordingly, this rule proposes to amend Section 251.5(b) to reflect 
the fact that State agencies must establish a residency requirement for 
households applying to receive commodities for home consumption. 
However, State agencies would continue to be prohibited from 
establishing a length-of-residency requirement. It should be noted that 
Section 251.4(j) of current regulations permits State agencies to enter 
into cooperative agreements with other State agencies to provide 
commodities jointly to, or to transfer commodities to, an organization 
serving needy persons in a contiguous area which crosses their 
respective States' borders. Organizations operating under such 
agreements may continue to serve persons crossing State lines for 
assistance. Section 203B(d) of the EFAA, which authorizes these 
cooperative agreements, was unchanged by Welfare Reform. This rule also 
proposes to amend Section 251.5(c) to clarify that State agencies may 
not delegate the responsibility for establishing eligibility criteria 
for program recipients to ERAs.
    As was the case under the now defunct SK/FB, individuals seeking 
food assistance at prepared meal sites would not be subject to a means 
test under the proposed rule, since such a test would obviously be 
difficult to implement and regulate, and not at all cost-effective when 
compared to the value of the benefit provided. A person may attend a 
soup kitchen on a very irregular basis and receive meals of which TEFAP 
commodities are only a small part. Rather, as discussed above, 
organizations which provide prepared meals would be required to 
demonstrate that they serve predominantly needy persons.

State Agreements With Eligible Recipient Agencies

    Section 251.2(c) of the current regulations requires State agencies 
to enter into an agreement with an EFO receiving TEFAP commodities or 
administrative funds. The agreement must provide that EFOs agree to 
operate the program in accordance with the requirements of 7 CFR part 
251 and, as applicable, 7 CFR part 250. As discussed above, this rule 
proposes to amend the definition of the term EFO to conform to the 
definition contained in

[[Page 36987]]

Welfare Reform and require that State agencies enter into agreements 
with ERAs to which they distribute TEFAP commodities and/or 
administrative funds; therefore, Section 251.2(c) would be amended 
under this proposed rule to reflect this change.
    The final rule, ``Food Distribution Programs--Reduction of the 
Paperwork Burden,'' published in the Federal Register on October 16, 
1997 (62 FR 53727), amended Sections 250.12(c) and 251.2(c) to make 
agreements between State agencies and ERAs permanent, with amendments 
to be made as necessary. Although none of those commenting on the rule 
at its proposed stage expressed concern, it has since come to the 
Department's attention that, while the authority for State agencies and 
ERAs to terminate agreements is clearly set forth in Section 
250.12(c)(3), no corresponding provision is contained in Section 
251.2(c). Therefore, Section 251.2(c) may have been interpreted by some 
to mean that State agencies could not terminate agreements with TEFAP 
ERAs. Since this was never the Department's intent, this rule proposes 
to revise Section 251.2(c) to clarify that agreements must provide 
State agencies and ERAs the authority to terminate the agreements upon 
30 days' written notice.
    In addition, this rule proposes to revise Section 251.2 to address 
those instances in which a State agency delegates responsibility to one 
or more ERAs to distribute TEFAP commodities and administrative funds 
to other ERAs (e.g., a central food bank distributing to one or more 
food pantries on the local level). In an effort to ensure that both the 
State agency and the ERA are fully cognizant of the responsibilities 
being delegated to the ERA, this rule proposes to require that the 
State agency specifically identify each function for which the ERA will 
be held responsible, and to require that the ERA perform such functions 
in accordance with the provisions contained in 7 CFR parts 250 and 251. 
Such functions must be identified in the agreement or through other 
written documents incorporated by reference in the agreement. In no 
case may a State agency delegate responsibility for establishing 
recipient or recipient agency eligibility criteria, or responsibility 
for ensuring, through State agency reviews, that the program is 
administered in accordance with Federal requirements. A State has the 
option to delegate both the authority to determine if organizations 
meet the State-established criteria for organizations to receive TEFAP 
commodities and administrative funds, and the authority to establish 
subpriorities consistent with the legislatively mandated priority 
system. If the State chooses not to exercise either one of these 
options, the State must identify the specific organizations which are 
eligible to receive TEFAP commodities and administrative funds in the 
agreement or other written documents incorporated by reference in the 
agreement.
    As discussed in detail below, State agencies may choose to allocate 
administrative funds to ERAs for use in paying specific costs. Since 
the amount of administrative funds may not be sufficient to cover all 
costs allowable under TEFAP regulations, State agencies may also 
restrict ERAs' use of these funds to a narrower list of cost types than 
is allowed by the regulations. Their reasons for doing so might include 
the desire to concentrate these funds on the most important program 
functions, such as transport and warehousing of food, rather than on 
ancillary expenses, such as office supplies. This rule proposes to 
amend Section 251.2 to require that, when the State agency imposes on 
its ERAs a more restrictive use of TEFAP administrative funds than 
provided in Section 251.8, the restricted list of costs must be 
identified in the agreement, or provided to ERAs by other written 
documents incorporated by reference in the agreement.

Agreements Between Eligible Recipient Agencies

    As discussed above, current regulations require agreements between 
States and ERAs to which they provide TEFAP commodities or 
administrative funds. There is, however, no requirement that ERAs enter 
into agreements with other ERAs to which they distribute TEFAP 
commodities or administrative funds on behalf of the State agency. It 
is extremely difficult to hold recipient agencies accountable for the 
distribution and use of TEFAP commodities and administrative funds 
without the existence of an agreement which sets forth the terms and 
conditions necessary to ensure that TEFAP commodities and 
administrative funds are distributed and used in accordance with 
Federal regulations. Therefore, this rule proposes to amend Section 
251.2 to require that ERAs distributing TEFAP commodities or 
administrative funds to other ERAs on behalf of the State agency enter 
into an agreement with those organizations prior to making TEFAP 
commodities or administrative funds available. ERAs would have to 
receive formal written authorization from the State, either in the 
agreement itself or by other written documents incorporated into the 
agreement by reference, to enter into agreements with other ERAs for 
the further distribution of TEFAP commodities or administrative funds. 
While current regulations do not require that such agreements be 
entered into, the Department has been advised that this practice is 
characteristic of the program and will not, therefore, result in an 
increase in the paperwork burden on ERAs. The Department, in its 
original calculation of burden hours for part 251, assumed that 
agreements would be in place whenever TEFAP commodities or 
administrative funds were transferred between State agencies and EFOs 
and between EFOs, since ensuring compliance with regulatory 
requirements would be extremely difficult if not impossible without 
written agreements at all levels. Therefore, the discussion of changes 
in burden hours under Paperwork Reduction Act above does not address 
these agreements, as their effect on the calculations has already been 
taken into consideration.

Distribution Rates

    Section 251.4(d)(3) of the current regulations requires that State 
agencies establish distribution rates for use by EFOs in distributing 
TEFAP commodities to needy households. This requirement was established 
when all, or almost all, commodities reached households through mass 
distributions, and when distributions of non-USDA commodities along 
with TEFAP commodities occurred infrequently. Increased reliance on 
food pantries, the growing practice of simultaneously distributing 
TEFAP and State or privately donated foods, and absorption of SK/FB 
into TEFAP have rendered mandatory distribution rates inappropriate. 
Such rates have also become increasingly less useful as the supply of 
TEFAP commodities to households has become more variable over time. 
Therefore, this rule proposes to revise Section 251.4(d)(3) to remove 
this requirement. However, State agencies may choose to develop 
distribution rates and require their use by all ERAs or specific types 
of ERAs, such as those that distribute TEFAP commodities only through 
mass distributions.

TEFAP State Distribution Plan

    Section 251.6(b) of the current regulations requires State agencies 
to submit a TEFAP distribution plan to the appropriate FNS Regional 
Office on an annual basis. This plan is required to contain: (1) a 
description of the criteria to be used for determining that applicant 
households are in need of

[[Page 36988]]

food assistance; (2) household rates of distribution for commodities; 
(3) a description of the program monitoring system, including any 
factors which may contribute to requests for approval of exceptions to 
conducting the minimum number of reviews; (4) a description of the 
State's formula for allocating administrative funds; and (5) a 
description of the State's contribution toward the matching 
requirement.
    Section 871(b) of Welfare Reform amended Section 202A of the EFAA 
in a manner that: (1) for the first time codifies the requirement of a 
TEFAP State Plan; (2) specifies its contents differently than present 
regulations; and (3) requires submittal of the plan once every four 
years, instead of the present annual regulatory requirement. Welfare 
Reform provides that the plan may be amended at any time. Welfare 
Reform also specifies that plans must: (1) designate the State agency 
responsible for distributing commodities; (2) set forth a plan of 
operation and administration to expeditiously distribute TEFAP 
commodities; (3) set forth standards of eligibility for recipient 
agencies; and (4) set forth standards of eligibility for individual or 
household recipients of commodities, which must require that 
individuals or households be comprised of needy persons, and that they 
reside in the geographic area served by the distributing agency at the 
time of applying for assistance.
    State agencies were notified of the changes in Welfare Reform 
regarding the State distribution plan in the January 14, 1997 
memorandum, which also indicated that they would not be required to 
submit a complete plan until Fiscal Year 2001. However, in the interim, 
State agencies were required to submit, by March 14, 1997, amendments 
to the plan reflecting any changes in program operations or 
administration, including those mandated by Welfare Reform. In 
accordance with the provisions of Welfare Reform, this rule proposes to 
amend Section 251.6 to require the submission of a State distribution 
plan once every four years, establishing 2001 as the base year, with 
amendments to be added as changes occur in aspects of State program 
administration that are described in the plan, or at the request of 
FNS.
    This rule also proposes to amend Section 251.6 to reflect the 
provisions contained in Welfare Reform regarding the specific contents 
of the plan. Following is a detailed description of the information 
State agencies are required to provide, pursuant to Section 871(b) of 
Welfare Reform.
    Single State Agency--Welfare Reform requires that the plan identify 
the State agency responsible for administration of the program. Thus, 
this rule proposes to require States to include the current name and 
address of the agency authorized to administer TEFAP, and the name of 
the agency official entrusted with binding signature authority. Where 
TEFAP and SK/FB were administered by two different State agencies prior 
to enactment of Welfare Reform, the January 14, 1997 memorandum 
required States to inform FNS of the Governor's selection of a single 
State administering agency; otherwise the Department assumed that the 
State agency administering TEFAP at the time of enactment would 
administer the consolidated TEFAP. The State agency identified in the 
plan will be responsible for all aspects of program administration, 
including reporting and monitoring requirements, submission of the 
State distribution plan, and commodity ordering, storage, and 
distribution. The State agency may enter into an agreement with another 
State agency or private organization to perform some program functions, 
but FNS will deal only with the designated single State agency, which 
remains fully responsible for program administration.
    Plan of Operation and Administration--Welfare Reform requires that 
the State agency ``set forth a plan of operation and administration to 
expeditiously distribute'' TEFAP commodities. Therefore, this rule 
proposes to reflect the requirement that State agencies include such an 
element as part of the State plan.
    Standards of Eligibility for Recipient Agencies--Under Welfare 
Reform, State agencies are now required to set forth eligibility 
standards for recipient agencies in their distribution plan. Within the 
minimum standards established by 7 CFR part 251, State agencies are 
afforded broad discretionary authority in establishing their 
distribution networks. This rule proposes to require State agencies to 
describe eligibility criteria established by the State agency, 
including any sub-priorities set within the two-tier priority system, 
for the receipt of TEFAP commodities and/or administrative funds.
    Standards of Eligibility for Individual or Household Recipients--
Welfare Reform requires that State agencies set forth standards of 
eligibility in their State plan which ensure that commodities are 
provided only to those in need, and that needy persons reside in the 
geographic location served by the distributing agency at the time of 
application for assistance. Therefore, this rule proposes to retain the 
requirement currently found in Section 251.6(a)(1), which requires 
State agencies to describe the criteria which must be used in 
determining the eligibility of households to receive TEFAP commodities 
for household use.
    This rule proposes to eliminate the present State plan 
requirements, with the exception of the neediness criteria of Section 
251.6(a)(1), as mentioned above. Also, as discussed in detail above, 
this rule proposes to remove the requirement of Section 251.4(d)(3) 
that State agencies develop distribution rates; therefore such rates 
will not be included in State plans. The other program requirements 
previously mandated to be addressed in State plans would continue to 
exist, as they possess an independent regulatory basis, but State 
agencies would no longer be required to include proposals for meeting 
them in their State plans. State agencies would continue to be required 
to comply with the program monitoring provisions contained in Section 
251.10(e). They would also be bound by the criteria for allowable uses 
of administrative funds contained in Section 251.8(d)(1), redesignated 
by this proposed rule as Section 251.8(e)(1), as discussed below, but 
would no longer be required to describe the monitoring system or the 
formula for allocating administrative funds in the State plan. A 
description of the State's contribution toward the matching requirement 
contained in Section 251.9(a) would no longer be required. Section 
251.9(e), referring to the matching requirement as an element of the 
State plan, is therefore proposed to be removed. Of course States must 
still meet their matching requirement and report it as required in 
Section 251.9(f). Under current regulations, the match is to be 
reported on form SF-269, Financial Status Report, which has become 
obsolete. Therefore, this rule would remove references to it and 
instead refer to form FNS-667, Report of Administrative Costs 
throughout Section 251.9(f), which is redesignated as Section 251.9(e) 
under this proposed rule. Elimination of the above plan requirements 
would reduce the burden associated with the administration of TEFAP at 
the State level, while not affecting program accountability.

Formula Adjustments

    Section 214(a) of the EFAA mandates the allocation of commodities 
purchased with funds appropriated for TEFAP to States through a formula 
based 60 percent on the number of persons in the State with incomes 
below the poverty line, relative to national figures, and 40 percent on 
the average

[[Page 36989]]

monthly number of unemployed persons in the State, again relative to 
national figures. Section 204(a)(1) of the EFAA, in turn, mandates that 
TEFAP administrative funds be allocated among the States on the same 
basis.
    Section 251.7 of the regulations implements this legislative 
mandate for the allocation of all commodities, including surplus USDA 
commodities, made available for distribution through TEFAP. In 
accordance with the regulatory provisions, the Department currently 
makes adjustments to the allocation formula for each State, based on 
updated unemployment statistics. For surplus commodities, adjustment is 
to be performed semi-annually, effective January 1 and July 1 of each 
fiscal year. For purchased commodities and administrative funds, 
adjustments are to be made annually, effective for the entire fiscal 
year. In the interest of streamlining program administration, and not 
subjecting States to disruptive mid-year formula adjustments, this rule 
proposes to revise Section 251.7 to make annual formula adjustments 
applicable to all commodities and administrative funds.

Disbursement of Administrative Funds

    Disbursement of Funds to States by USDA--Section 251.8(c) provides 
for the disbursement of administrative funds to State agencies by means 
of U.S. Treasury checks or letters of credit in accordance with FNS 
Instruction 407-3 (Grant Award Process). This section currently 
requires that U.S. Treasury checks or letters of credit be issued 
pursuant to submission of the SF-270, Request for Advance or 
Reimbursement, and that State agencies receive funds through a letter 
of credit if payments are more than $120,000 for the year. Changes in 
financial management procedures and regulations, mainly attributable to 
implementation of automated electronic transactions, have rendered 
these provisions obsolete. It is now the practice of FNS to make funds 
available to States exclusively by means of letters of credit. 
Therefore, the above cited references to U.S. Treasury checks and the 
$120,000 threshold, would be removed by this proposed rule. FNS 
Instruction 407-3 is also obsolete, and in order to prevent part 251 
from becoming outdated whenever financial management instructions 
change, this reference would be removed and replaced with a general 
reference to financial procedures established by FNS. Furthermore, as 
the SF-270 is no longer used, this rule would remove reference to it.
    Disbursement of funds to ERAs by States--In the two-tiered priority 
system discussed in this preamble, not every ERA qualifies as an EFO. 
Under this system, State agencies and ERAs to which authority has been 
delegated would be required to ensure that the USDA commodity needs of 
all first-tier organizations, i.e., EFOs, are met before food is made 
available to a second-tier ERA. A similar situation exists with respect 
to documenting compliance with the requirement contained in Section 
204(a)(2) of the EFAA that each State agency make available to EFOs not 
less than 40 percent of the State's share of TEFAP administrative 
funding. Although State agencies may disburse administrative funds to 
second-tier ERAs, such funds cannot be counted toward meeting the 40 
percent pass-through requirement. This rule proposes to amend Section 
251.9 to expressly prohibit State agencies from counting any funds 
provided by the State agency directly to ERAs that are not EFOs, or 
used by the State to pay costs on such ERAs' behalf, toward the 40 
percent pass-through requirement. However, in instances in which State 
agencies have agreements with EFO intermediaries such as food banks, 
which, in turn, may share administrative funds with other EFOs as well 
as second-tier ERAs, requiring State agencies to account for the 
disposition of administrative funding to EFOs and second-tier ERAs by 
the organizations with which they have agreements would create undue 
expense and administrative complexity to protect against an unlikely 
event, i.e., that EFOs might receive less than 40 percent of the 
State's grant. Recent history has shown that administrative funding 
will probably not be sufficient to serve very many second-tier ERAs. In 
addition, most State agencies currently pass through to EFOs 
considerably more than 40 percent of their administrative funds, making 
it extremely unlikely that a State agency would fall below the minimum 
threshold. Therefore, this rule proposes to amend Section 251.8 to 
clarify that, if a State agency passes down to EFOs with which it has 
an agreement, or expends on behalf of such organizations, at least 40 
percent of its administrative grant, the State agency will be deemed to 
have met its pass-through requirement. State agencies would not be 
required to account for how these organizations further distribute 
administrative funding in order to meet their pass-through requirement. 
For example, if a State passes administrative funds down to, or expends 
such funds on behalf of, a food bank with which it has an agreement, 
and which is an EFO, those funds can be counted toward the pass-through 
requirement. The State need not examine the food bank's records for the 
purpose of determining if the food bank passed any of the funds on to 
an organization which is not an EFO. All ERAs would, of course, be 
subject to audit and are accountable for their use of funds for 
necessary, reasonable, and allowable costs.
    As discussed in detail below, the provisions of Welfare Reform 
permit State and local agencies to use TEFAP administrative funds for a 
much broader array of costs associated with the distribution of USDA 
and non-USDA commodities. This will, of course, intensify competing 
demands for funds, and require that additional priorities be set. The 
Department believes that TEFAP administrative funds should be available 
to leverage the supply of food to the needy, from whatever the source. 
However, the Department also expects that those funds should be 
available first to distribute the supply of TEFAP commodities. Only 
after this need has been fully met should TEFAP administrative funds be 
used to distribute non-USDA commodities. However, it would be 
impractical to apportion administrative funds within an organization on 
the basis of the proportion of USDA and non-USDA commodities it 
handles, in an attempt to ensure that administrative expenses 
associated with USDA commodities are covered before funds are used for 
the distribution of non-USDA commodities. Therefore, this rule proposes 
to amend Section 251.8(d) to provide only that State agencies and ERAs 
distributing administrative funds shall ensure that the administrative 
funding needs of ERAs which receive USDA commodities are met, relative 
to both USDA commodities and any non-USDA commodities they may receive, 
before such funding is made available to ERAs which distribute only 
non-USDA commodities.

Allowable Administrative Costs

    Indirect Costs--Over the years, many questions have been raised 
about whether indirect costs may be charged against TEFAP 
administrative grants. The definition of ``storage and distribution 
costs'' in the initial TEFAP regulations issued on April 26, 1983 (48 
FR 19004) limited allowable storage and distribution costs to ``direct 
costs.'' Subsequent revisions of the TEFAP regulations retained this 
limitation, currently found in Section 251.8(d)(1)(i). However, section 
204(a)(2) of the EFAA requires States to make available not less than 
40 percent of their grants as necessary to meet the ``direct expenses'' 
of EFOs. This term is

[[Page 36990]]

defined as including ``transporting, storing, handling, repackaging, 
processing, and distributing commodities * * * costs associated with 
determinations of eligibility, verification, and documentation; costs 
of providing information to persons receiving commodities * * * 
concerning the appropriate storage and preparation of such commodities; 
and costs of recordkeeping, auditing, and other administrative 
procedures required for participation in the program under this Act.''
    Direct ``expenses'' does not have the same meaning as direct 
``costs.'' In fact, many of the items identified in EFAA Section 
204(a)(2) as ``direct expenses'' could be charged as either direct or 
indirect costs depending on the EFO's accounting system (e.g., 
recordkeeping and auditing costs). To ensure consistency in the 
treatment of these expenses, this rule would amend Section 251.8 to 
define ``direct expenses'' to include both direct and indirect costs 
attributable to TEFAP.
    Non-USDA Commodities--Prior to Welfare Reform, States and EFOs were 
permitted by Section 203D(b) of the EFAA to use TEFAP administrative 
funds to pay costs associated with the storing, handling, and 
distributing of non-USDA commodities. In addition, Section 204(a)(2) of 
the EFAA permitted EFOs to pay costs associated with the repackaging 
and processing of USDA commodities, as well as the costs of 
transporting, storing, handling and distributing such commodities. 
Welfare Reform amended Section 204(a)(1) of the EFAA to expand the 
allowable uses of TEFAP administrative funds to permit States to use 
such funds to pay costs associated with the processing of both TEFAP 
commodities and commodities secured from other sources. However, no 
corresponding change was made to Section 204(a)(2). Nevertheless, upon 
further review of the legislative changes made to the EFAA as a result 
of Welfare Reform, it has been noted that removing the distinction 
between TEFAP commodities and commodities secured from other sources in 
Section 204(a)(1) affected Section 204(a)(2) as well. As a result of 
this amendment, both States and ERAs may use TEFAP funds to pay costs 
associated with the processing, as well as the transporting, storing, 
handling, repackaging, and distributing of USDA and non-USDA 
commodities. This rule proposes to revise Section 251.8(e)(1)(i) to 
reflect the authority of the State agencies and ERAs to use TEFAP 
administrative funds to pay such costs.
    Interstate Costs--TEFAP regulations have consistently limited 
``storage and distribution costs'' to intrastate costs at both the 
State and local level. This limitation was based on the language 
contained in Section 204(a)(2) of the EFAA which limits allowable EFO 
costs of transporting, storing, handling, repackaging, processing and 
distributing both USDA and non-USDA commodities to those costs incurred 
``after [the commodities] are received by the organization.'' However, 
this restriction fails to recognize the increasing instances of 
interstate costs associated with the distribution of non-USDA 
commodities. The HPA first provided for the use of TEFAP administrative 
funds to pay costs associated with the distribution of non-USDA 
commodities by ERAs in 1988. Section 871(c) of Welfare Reform extended 
the authority to use TEFAP administrative funds for this purpose to 
States. These legislative changes have caused the Department to re-
evaluate the prohibition on interstate costs. It has been determined 
that the phrase ``incurred after they are received by the 
organization'' does not necessarily mean that the ERA must have 
physical possession of the commodities. Once a particular commodity has 
been earmarked for a particular agency and has become its 
responsibility, the proposal would permit TEFAP funds to be used to pay 
any associated allowable cost. For example, if a farmer in another 
State makes potatoes available to an organization for gleaning, TEFAP 
funds could be used to pay the cost of transporting, processing and 
storing those potatoes. Therefore, this rule also proposes to amend 
Section 251.8(e)(1)(i) to allow interstate expenditures by both State 
and local agencies, with the restriction that for such expenditures to 
be allowable, the commodities in question must have been earmarked for 
the particular local agency and become its responsibility.
    While the EFAA gives a more exhaustive list of the types of EFO 
costs that may be counted toward the 40 percent pass-through 
requirement, the Department considers these costs to be a subset of the 
full range of costs for which a State and other types of ERAs may use 
TEFAP funds. Included are typical ``local'' costs such as those 
associated with determinations of eligibility, verification, and 
documentation, costs of providing information to persons receiving 
commodities concerning the appropriate storage and preparation of such 
commodities, and costs of recordkeeping, auditing, and other 
administrative procedures required for participation in the program, as 
they are considered legitimate costs associated with program 
administration. Therefore, this rule proposes to revise Section 
251.8(e)(1) to provide one list of the types of allowable costs for 
which TEFAP administrative funds can be used at either the State or 
local level.
    This rule also proposes to amend Section 251.8(e)(2) to address 
those instances in which State agencies limit the use of TEFAP 
administrative funds to pay specific types of expenses. In most 
instances, there is not a sufficient amount of TEFAP administrative 
funds to pay all allowable local level costs. Therefore, some State 
agencies choose to limit the use of such funds to ensure that funds are 
utilized in a manner that results in TEFAP commodities being made 
available to the greatest number of needy possible. As discussed above, 
if the State agency chooses to limit the use of TEFAP administrative 
funds, the specific types of expenses for which funds can be used by 
ERAs must be identified in the agreement or other written documents 
incorporated by reference in the agreement.
    The accompanying chart has been included in this preamble to assist 
readers in understanding the changes to the allowable administrative 
cost categories of Section 251.8 set forth in this proposed rule.

BILLING CODE 3410-30-U

[[Page 36991]]

[GRAPHIC] [TIFF OMITTED] TP08JY99.005



BILLING CODE 3410-30-C

[[Page 36992]]

Recordkeeping and Reporting Requirements

    Section 251.10(a)(5) currently requires EFOs to retain all records 
for a period of 3 years from the close of the Federal Fiscal Year to 
which they pertain. This rule proposes to amend Section 251.10(a)(5), 
which is redesignated under this proposed rule as Section 251.10(a)(4), 
to require records to be kept by the ERA, or the State agency on behalf 
of the ERA, as long as such records are reasonably accessible at all 
times for purposes of management evaluation reviews, audits or 
investigations. This change would serve to clearly state the commonly 
accepted rule that once records become the subject of an audit or 
investigation, any time limits otherwise permitting their disposal are 
suspended until the audit or investigation is concluded. The second 
advantage would be greater flexibility in custodial arrangements for 
records, e.g., a mass distribution site may not have appropriate record 
storage space and may wish to ship its records to the State for 
safekeeping. This provision would be further amended to require records 
to be kept longer than 3 years if related to an audit or investigation 
in progress.
    Section 251.10(a)(3) of the regulations currently requires each 
TEFAP distribution site to keep records showing the data and method 
used to determine the number of eligible households served at that 
site. Section 251.10(d)(2) of the regulations in turn currently 
requires States to report, on form FNS-155, the total number of 
households served in the State under TEFAP. Now that TEFAP and SK/FB 
have been consolidated, a significant proportion of TEFAP commodities 
are used for prepared meals. The Department does not intend to require 
that sites which serve prepared meals report the number of meals 
served, as in many instances, some meals would not contain TEFAP 
commodities, and in many other situations, such commodities might 
comprise a small part of meals. In addition, such a requirement would 
impose an unreasonable burden on sites which provide prepared meals. 
Therefore, information relative only to the number of households served 
through TEFAP is of little value to the Department since it bears no 
relationship to the total number of needy receiving assistance through 
TEFAP, and does not account for the disposition of all TEFAP 
commodities. The Final Rule, ``Food Distribution Programs-Reduction of 
the Paperwork Burden,'' published at 62 FR 53727, amended Section 
250.17(a) to allow the Department to establish the frequency of 
submission of form FNS-155 and, by implication, the information 
reported on the form, to conform to program needs. FNS Regional Offices 
were notified by means of TEFAP Policy Memorandum No. 12-TEFAP 
Household Participation Data, dated December 23, 1997, that the 
Department was exercising this authority to eliminate reporting of 
household data in TEFAP, and that current regulations would be amended 
to reflect this change. Therefore, this rule proposes to remove Section 
251.10(a)(3), as it is oriented toward reporting the number of 
households served, and to revise Section 251.10(d)(2) to eliminate the 
requirement that State agencies report the total number of households 
served. Since it remains necessary, for purposes of accountability, to 
maintain information specific to each household certified for 
participation in the program, the requirements contained in Section 
251.10(a)(4) are retained in this proposed rule, and redesignated as 
Section 251.10(a)(3).

Monitoring Requirements

    Section 251.10(e)(2)(i) of current regulations requires State 
agencies to conduct on-site reviews of each participating organization 
with which the State has an agreement (i.e., EFO as defined by current 
regulations) at least once every four years, with at least 25 percent 
of the total number of such institutions reviewed each year. As 
discussed above, this rulemaking proposes to change the definition of 
EFO so that it corresponds to the legislative definition. Therefore, 
this rule proposes to replace the reference to EFO in Section 
251.10(e)(2)(i) with ``eligible recipient agency with which the State 
agency has executed an agreement.'' However, the applicability of the 
requirement remains unchanged in this proposed rule.
    Section 251.10(e)(2)(ii) of current regulations requires that the 
State agency annually review one-third or 50, whichever is fewer, of 
all distribution sites within the State, to be conducted, to the 
maximum extent feasible, simultaneously with actual distribution and/or 
eligibility determinations. In selecting distribution sites for review, 
Sec. 251.10(e)(3) of current regulations requires the State agency to 
rank all the sites according to the number of households participating 
during the previous Federal fiscal quarter and select for review the 
first 25 sites, or first one-sixth of all sites, whichever is fewer, 
which served the greatest number of households.
    As indicated above, the 25 percent review requirement is proposed 
to apply to all ERAs which have an agreement with the State agency. The 
remaining review requirement, in Section 251.10(e)(2)(ii), is proposed 
to apply to all other ERAs, that is, to all ERAs which have an 
agreement with another ERA rather than the State agency. The Department 
proposes to reduce the frequency of this requirement. Thus, instead of 
annually reviewing the lesser of one-third or 50 of all distribution 
sites, the State agency would be required to review the lesser of one-
tenth or 20 of all ERAs which have an agreement with another ERA. With 
the absorption of SK/FB into TEFAP, State agencies must actually expand 
their monitoring activities to include ERAs which serve prepared meals, 
so the total number of ERAs will increase. However, the value of 
available USDA commodities has decreased since the current regulatory 
requirement was established many years ago, generally reducing the need 
for oversight. As such, State agencies should have the flexibility to 
direct limited administrative resources where there is the most need 
for program oversight and corrective action. This change would decrease 
the burden associated with administration currently imposed on State 
agencies while maintaining program accountability.
    As indicated above, Section 251.10(e)(3) of current regulations 
mandates a system for selecting and ranking distribution sites for 
review based on the number of households they serve. As previously 
noted, the number of households served is no longer meaningful data 
since SK/FB has been merged with TEFAP. In addition, it has been 
determined that States should be granted more flexibility in selecting 
ERAs for review. Therefore, this rule proposes to remove the current 
Section 251.10(e)(3) and to amend Section 251.10(e)(2)(ii) to require 
that State agencies develop a system for reviewing ERAs which have 
signed an agreement with another ERA for the receipt of TEFAP 
commodities and/or administrative funds that ensures deficiencies in 
program administration are detected and resolved in an effective and 
efficient manner. Examples of criteria States might apply include 
actual or probable deficiencies in program administration, such as 
weakness in inventory management, that have been identified through 
audits, investigations of complaints; deficiencies in, or tardiness of, 
reports submitted by ERAs; or the dollar value of the TEFAP commodities 
received in

[[Page 36993]]

the previous Federal fiscal quarter. Use of such criteria would yield 
systematic selection while at the same time providing State agencies 
the flexibility necessary to direct limited administrative resources 
where oversight and corrective action are most needed.
    FNS Instruction 113-3, ``Civil Rights Compliance and Enforcement--
Food Distribution Programs,'' presently includes an on-site review 
requirement of recipient agencies every five years to ensure compliance 
with civil rights regulations. In accordance with the change in on-site 
review requirements for TEFAP proposed above, the Department plans to 
revise this provision of the instruction. The revised instruction would 
require that on-site reviews of ERAs to ensure compliance with civil 
rights provisions be conducted at the frequency established in Section 
251.10(e)(2)(i) and (e)(2)(ii) of this proposed rule.
    Section 251.10(e)(6) of current regulations requires that the State 
agency submit a report of review findings to each EFO, including a 
description of each deficiency found and factors contributing to each, 
requirements for corrective actions, and a timetable for completion of 
corrective action. The State agency must then monitor the 
implementation of corrective actions identified in the report. The 
Department has determined that this requirement is too prescriptive. 
State agencies should be given more flexibility to determine the manner 
in which they will work with ERAs to develop corrective action plans to 
remedy deficiencies. Therefore, this rule proposes to redesignate 
Section 251.10(e)(6) as Section 251.10(e)(5) and to amend it to require 
the State agency to submit a report of review findings to an ERA only 
if the review discloses deficiencies in program administration. In 
addition, the specific requirements for the report would be removed. 
State agencies would, however, continue to be responsible for ensuring 
that ERAs take corrective action to eliminate the deficiencies 
identified during the review.

Maintenance of Effort

    Section 871(d)(5) of Welfare Reform amended Section 214(d) of the 
EFAA to allow States greater flexibility in complying with the 
maintenance-of-effort requirement by removing the mandate that a State 
agency maintain the amount of State funds made available to support 
other (non-TEFAP) nutrition programs in the State during each fiscal 
year. The prohibition against reducing State funding remains only for 
TEFAP itself, i.e., it applies only to State agencies that use their 
own funds to provide commodities or services to organizations receiving 
federal funds or services under TEFAP. This rule proposes to amend 
Section 251.10(h) accordingly.
    In recent years, some States have been supporting TEFAP with 
significant amounts of their own funds, a development that should be 
encouraged. Therefore, the maintenance-of-effort requirement should not 
be construed to require that State spending on TEFAP within the State 
never fall below the highest level achieved in any year. Such an 
interpretation would no doubt cause States to become extremely wary of 
increasing their support for TEFAP, for fear that they would be forced, 
even if unable, to continue to provide the increased level of 
contributions in future years. Therefore, in an effort to encourage 
States to contribute additional resources to the extent feasible in any 
given year, this rule proposes to amend Section 251.10(h) to define the 
``base year'' to be used in determining if States are complying with 
the maintenance-of-effort requirement as ``the fiscal year when the 
State first began administering TEFAP, or Fiscal Year 1988, which is 
the fiscal year in which the maintenance-of-effort requirement became 
effective, whichever is later.'' The maintenance-of-effort requirement 
is independent of the State matching requirement for TEFAP 
administrative funds which States retain for State-level administrative 
costs, as set forth in Section 251.9.

National School Lunch Program--State Advisory Councils and Consultation 
Requirement

    Section 707(b) of Welfare Reform amended Section 14(e) of the NSLA 
(42 U.S.C. 1762a(e)) to remove the requirement that State educational 
agencies-which typically are not involved with decisions relative to 
the commodity program-establish an advisory council for the purpose of 
advising the agency on schools' needs relative to the selection and 
distribution of commodities. Current regulations at 7 CFR 210.28 
require State educational agencies to maintain these advisory councils. 
State agencies were informed via the January 14, 1997 policy memorandum 
that, effective immediately, State educational agencies need not 
maintain the formerly required advisory councils. The elimination of 
this requirement from the regulations is being addressed by FNS's Child 
Nutrition Division in a separate rulemaking covering the implementation 
of Welfare Reform relative to child nutrition programs. States should 
not interpret this change in the law as a requirement to disband their 
advisory councils. To the extent that they have proved useful, States 
may wish to retain them. It should be noted that, as mentioned 
previously, Section 871(b) of Welfare Reform amended Section 202A(c) of 
the EFAA to require the Secretary to encourage States to establish a 
State advisory board comprised of public and private entities with an 
interest in the distribution of TEFAP commodities. As noted above, this 
rule proposes to revise Section 251.4(h) to include language 
encouraging States to establish such an advisory board.
    Section 707(b) of Welfare Reform also amended section 14(e) of the 
NSLA (42 U.S.C. 1762a(e)) to require that State agencies responsible 
for the distribution of commodities consult with representatives of 
schools in the State that participate in the National School Lunch 
Program when making decisions regarding the selection and distribution 
of commodities. Food Distribution Program regulations regarding 
commodity acceptability reports and information dissemination (Sections 
250.13(k) and 250.24(b) respectively) should prove adequate to fulfill 
this consultation requirement, especially given Congress' decision to 
eliminate the requirement for advisory councils, and the general need 
to reduce the burden of program administration. Therefore this rule 
proposes no new regulations in furtherance of this legislative mandate. 
The above regulatory provisions do, however, include references 
(Sections 250.13(k)(2) and 250.24(b)(4)) to the no-longer-required 
advisory councils, which this rule proposes to eliminate.

Alien Provisions

    The provisions of Welfare Reform affecting aliens do not require 
that States in any way restrict access of aliens to TEFAP. States can 
continue serving all categories of aliens they served prior to 
enactment of Welfare Reform. While Welfare Reform does not require 
discontinuation of benefits to aliens, Section 742 does give States the 
option to provide, or not provide, program benefits to any individual 
who is not a citizen or a qualified alien. However, prior to making any 
changes in program administration based on the alien provisions of 
Welfare Reform, States are advised to consult with their legal counsel.
    States should also be aware that Section 403(a) of Welfare Reform 
imposes a five-year waiting period after

[[Page 36994]]

a qualified alien enters the country before s/he is eligible for any 
``Federal means-tested public benefit.'' The Department has determined 
that FNS's food distribution programs, including TEFAP, are not subject 
to this provision. Therefore the five-year waiting period does not 
apply. The Department will publish a separate rulemaking to incorporate 
the provisions of Welfare Reform regarding eligibility of aliens for 
TEFAP and other food distribution programs.

Technical Amendments

    This rule proposes to amend part 251 to remove the obsolete word 
``Temporary'' from Section 251.1 and to correct outdated references.

List of Subjects

7 CFR Part 250

    Aged, Agricultural commodities, Business and industry, Food 
assistance programs, Food donations, Food processing, Grant programs-
social programs, Indians, Infants and children, Commodity loan 
programs, Reporting and recordkeeping requirements, School breakfast 
and lunch programs, Surplus agricultural commodities.

7 CFR Part 251

    Aged, Agricultural commodities, Business and industry, Food 
assistance programs, Food donations, Grant programs-social programs, 
Indians, Infants and children, Commodity loan programs, Reporting and 
recordkeeping requirements, School breakfast and lunch programs, 
Surplus agricultural commodities.

    Accordingly, 7 CFR parts 250 and 251 are proposed to be amended as 
follows:

PART 250--DONATION OF FOODS FOR USE IN THE UNITED STATES, ITS 
TERRITORIES AND POSSESSIONS AND AREAS UNDER ITS JURISDICTION

    1. The authority citation for part 250 continues to read as 
follows:

    Authority: 5 U.S.C. 301; 7 U.S.C. 612c, 612c note, 1431, 1431b, 
1431e, 1431 note, 1446a-1, 1859, 2014, 2025; 15 U.S.C. 713c; 22 
U.S.C. 1922; 42 U.S.C. 1751, 1755, 1758, 1760, 1761, 1762a, 1766, 
3030a, 5179, 5180.


Sec. 250.3  [Amended]

    2. In Section 250.3, the definitions of Food bank and Soup kitchen 
are removed.


Sec. 250.13  [Amended]

    3. In Sec. 250.13:
    a. Paragraph (a)(1)(iv) is amended by removing the words 
``emergency feeding organizations'' wherever they appear and adding the 
words ``eligible recipient agencies'' in their place.
    b. The last sentence of paragraph (k)(2) is amended by removing the 
words ``, including, for example, State Food Distribution Advisory 
Council Reports''.


Sec. 250.24  [Amended]

    4. In Sec. 250.24, paragraph (b)(4) is removed, and paragraphs 
(b)(5) and (b)(6) are redesignated as paragraphs (b)(4) and (b)(5), 
respectively.


Sec. 250.41  [Amended]

    5. In Sec. 250.41, the first sentence of paragraph (a)(1) is 
amended by removing the words ``With the exception of section 110 
commodities, which are to be distributed in accordance with the 
provisions of Sec. 250.52, the'' and adding in their place ``The''.


Sec. 250.52  [Removed]

    6. Section 250.52 is removed.

PART 251--THE EMERGENCY FOOD ASSISTANCE PROGRAM

    1. The authority citation for part 251 continues to read as 
follows:

    Authority: 7 U.S.C. 7501-7516.


Sec. 251.1  [Amended]

    2. In Sec. 251.1, the word ``Temporary'' is removed.
    3. In Sec. 251.2:
    a. Paragraph (a) is amended by adding the heading ``Food and 
Nutrition Service.'';
    b. Paragraph (b) is amended by adding the heading ``State 
Agencies.'', by removing the words ``emergency feeding organizations'' 
and by adding the words ``eligible recipient agencies'' in their place;
    c. Paragraph (c) is revised; and
    d. Paragraph (d) is added.
    The revision and addition read as follows:


Sec. 251.2  Administration.

* * * * *
    (c) Agreements. (1) Agreements between Department and States. Each 
State agency that distributes donated foods to eligible recipient 
agencies or receives payments for storage and distribution costs in 
accordance with Sec. 251.8 must perform those functions pursuant to an 
agreement entered into with the Department. This agreement will be 
considered permanent, with amendments initiated by State agencies, or 
submitted by them at the Department's request, all of which will be 
subject to approval by the Department.
    (2) Agreements between State agencies and eligible recipient 
agencies, and between eligible recipient agencies. Prior to making 
donated foods or administrative funds available, State agencies must 
enter into a written agreement with eligible recipient agencies to 
which they plan to distribute donated foods and/or administrative 
funds. State agencies must ensure that eligible recipient agencies in 
turn enter into a written agreement with any eligible recipient 
agencies to which they plan to distribute donated foods and/or 
administrative funds before donated foods or administrative funds are 
transferred between any two eligible recipient agencies. All agreements 
entered into must contain the information specified in paragraph (d) of 
this section, and be considered permanent, with amendments to be made 
as necessary, except that agreements must specify that they may be 
terminated by either party upon 30 days' written notice. State agencies 
must ensure that eligible recipient agencies provide, on a timely 
basis, by amendment to the agreement, or other written documents 
incorporated into the agreement by reference if permitted under 
paragraph (d) of this section, any information on changes in program 
administration, including any changes resulting from amendments to 
Federal regulations or policy.
    (d) Contents of agreements between State agencies and eligible 
recipient agencies and between eligible recipient agencies. (1) 
Agreements between State agencies and eligible recipient agencies and 
between eligible recipient agencies must provide:
    (i) That eligible recipient agencies agree to operate the program 
in accordance with the requirements of this part, and, as applicable, 
part 250 of this chapter; and
    (ii) The name and address of the eligible recipient agency 
receiving commodities and/or administrative funds under the agreement; 
and
    (iii) The name of the person responsible for administering the 
program in the receiving eligible recipient agency.
    (2) The following information must also be identified, either in 
the agreement or other written documents incorporated by reference in 
the agreement:
    (i) If the State agency delegates the responsibility for any aspect 
of the program to an eligible recipient agency, each function for which 
the eligible recipient agency will be held responsible; except that in 
no case may State agencies delegate responsibility for establishing 
eligibility criteria for organizations in accordance with

[[Page 36995]]

Sec. 251.5(a), establishing eligibility criteria for recipients in 
accordance with Sec. 251.5(b), or conducting reviews of eligible 
recipient agencies in accordance with Sec. 251.10(e);
    (ii) If the receiving eligible recipient agency is to be allowed to 
further distribute TEFAP commodities and/or administrative funds to 
other eligible recipient agencies, the specific terms and conditions 
for doing so, including, if applicable, a list of specific 
organizations or types of organizations eligible to receive commodities 
or administrative funds;
    (iii) If the use of administrative funds is restricted to certain 
types of expenses pursuant to Sec. 251.8(e)(2), the specific types of 
administrative expenses eligible recipient agencies are permitted to 
incur;
    (iv) Any other conditions set forth by the State agency.
    4. Section 251.3 is revised to read as follows:


Sec. 251.3  Definitions.

    (a) The terms used in this part that are defined in part 250 of 
this chapter have the meanings ascribed to them therein, unless a 
different meaning for such a term is defined herein.
    (b) Charitable institution (which is defined differently in this 
part than in part 250 of this chapter) means an organization which--
    (1) Is public, or
    (2) Is private, possessing tax exempt status pursuant to 
Sec. 251.5(a)(3); and
    (3) Is not a penal institution (this exclusion also applies to 
correctional institutions which conduct rehabilitation programs); and
    (4) Provides food assistance to needy persons.
    (c) Distribution site means a location where the eligible recipient 
agency actually distributes commodities to needy persons for household 
consumption or serves prepared meals to needy persons under this part.
    (d) Eligible recipient agency means an organization which--
    (1) Is public, or
    (2) Is private, possessing tax exempt status pursuant to 
Sec. 251.5(a)(3); and
    (3) Is not a penal institution; and
    (4) Provides food assistance--
    (i) Exclusively to needy persons for household consumption, 
pursuant to a means test established pursuant to Sec. 251.5(b), or
    (ii) Predominantly to needy persons in the form of prepared meals 
pursuant to Sec. 251.5(a)(2); and
    (5) Has entered into an agreement with the designated State agency 
pursuant to Sec. 251.2(c) for the receipt of commodities or 
administrative funds, or receives commodities or administrative funds 
under an agreement with another eligible recipient agency which has 
signed such an agreement with the State agency or another eligible 
recipient agency within the State pursuant to Sec. 251.2(c); and
    (6) Falls into one of the following categories:
    (i) Emergency feeding organizations (including food banks, food 
pantries and soup kitchens);
    (ii) Charitable institutions (including hospitals and retirement 
homes);
    (iii) Summer camps for children, or child nutrition programs 
providing food service;
    (iv) Nutrition projects operating under the Older Americans Act of 
1965 (Nutrition Program for the Elderly), including projects that 
operate congregate nutrition sites and projects that provide home-
delivered meals; and
    (v) Disaster relief programs.
    (e) Emergency feeding organization means an eligible recipient 
agency which provides nutrition assistance to relieve situations of 
emergency and distress through the provision of food to needy persons, 
including low-income and unemployed persons. Emergency feeding 
organizations have priority over other eligible recipient agencies in 
the distribution of TEFAP commodities pursuant to Sec. 251.4(h).
    (f) Food bank means a public or charitable institution that 
maintains an established operation involving the provision of food or 
edible commodities, or the products of food or edible commodities, to 
food pantries, soup kitchens, hunger relief centers, or other food or 
feeding centers that, as an integral part of their normal activities, 
provide meals or food to feed needy persons on a regular basis.
    (g) Food pantry means a public or private nonprofit organization 
that distributes food to low-income and unemployed households, 
including food from sources other than the Department of Agriculture, 
to relieve situations of emergency and distress.
    (h) Formula means the formula used by the Department to allocate 
among States the commodities and funding available under this part. The 
amount of such commodities and funds to be provided to each State will 
be based on each State's population of low-income and unemployed 
persons, as compared to national statistics. Each State's share of 
commodities and funds shall be based 60 percent on the number of 
persons in households within the State having incomes below the poverty 
level and 40 percent on the number of unemployed persons within the 
State. The surplus commodities will be allocated to States on the basis 
of their weight (pounds), and the commodities purchased under section 
214 of the Emergency Food Assistance Act of 1983 will be allocated on 
the basis of their value (dollars). In instances in which a State 
determines that it will not accept the full amount of its allocation of 
commodities purchased under section 214 of the Emergency Food 
Assistance Act of 1983, the Department will reallocate the commodities 
to other States on the basis of the same formula used for the initial 
allocation.
    (i) State agency means the State government unit designated by the 
Governor or other appropriate State executive authority which has 
entered into an agreement with the United States Department of 
Agriculture under Sec. 251.2(c).
    (j) Soup kitchen means a public or charitable institution that, as 
an integral part of the normal activities of the institution, maintains 
an established feeding operation to provide food to needy homeless 
persons on a regular basis.
    (k) Value of commodities distributed means the Department's cost of 
acquiring commodities for distribution under this part.
    5. In Sec. 251.4:
    a. The words ``emergency feeding organization'', ``emergency 
feeding organizations'' and ``emergency feeding organization's'' are 
removed wherever they appear in the section, and the words ``eligible 
recipient agency'', ``eligible recipient agencies'' and ``eligible 
recipient agency's'' respectively are added in their place;
    b. Paragraph (c)(1) is amended by removing the reference to 
``Sec. 251.3(d)''and adding a reference to ``Sec. 251.3(h)'' in its 
place;
    c. Paragraph (d)(3) is removed;
    d. Paragraph (f)(5) is amended by removing the reference 
``Sec. 250.15'' and adding in its place the reference ``Sec. 250.30'';
    e. Paragraphs (g) and (h) are revised;
    f. Paragraph (j) is amended by adding the words ``that has signed 
an agreement with the respective State agencies'' after the words 
``eligible recipient agency'';
    The revisions read as follows:


Sec. 251.4  Availability of commodities.

* * * * *
    (g) Availability and control of donated commodities. Donated 
commodities will be made available to State agencies only for 
distribution and use in accordance with this part. Except as otherwise 
provided in paragraph (f) of this section, donated commodities not so 
distributed or used for any reason may not be sold, exchanged, or 
otherwise disposed of

[[Page 36996]]

without the approval of the Department. However, donated commodities 
made available under section 32 of Pub. L. 74-320 (7 U.S.C. 612c) may 
be transferred by eligible recipient agencies receiving commodities 
under this part, or recipient agencies, as defined in Sec. 250.3 of 
this chapter, to any other eligible recipient agency or recipient 
agency which agrees to use such donated foods to provide without cost 
or waste, nutrition assistance to individuals in low-income groups. 
Such transfers will be effected only with prior authorization by the 
appropriate State agency and must be documented. Such documentation 
shall be maintained in accordance with Sec. 251.10(a) of this part and 
Sec. 250.16 of this chapter by the distributing agency and the State 
agency responsible for administering TEFAP and made available for 
review upon request.
    (h) Distribution to eligible recipient agencies-priority system and 
advisory boards.--(1) State agencies must distribute commodities made 
available under this part to eligible recipient agencies in accordance 
with the following priorities:
    (i) First priority. When a State agency cannot meet all eligible 
recipient agencies' requests for TEFAP commodities, the State agency 
must give priority in the distribution of such commodities to emergency 
feeding organizations as defined under Sec. 251.3(e). A State agency 
may, at its discretion, concentrate commodity resources upon a certain 
type or types of such organizations, to the exclusion of others.
    (ii) Second priority. After a State agency has distributed TEFAP 
commodities sufficient to meet the needs of all emergency feeding 
organizations, the State agency must distribute any remaining program 
commodities to other eligible recipient agencies which serve needy 
people, but do not relieve situations of emergency and distress. A 
State agency may, at its discretion, concentrate commodity resources 
upon a certain type or types of such organizations, to the exclusion of 
others.
    (2) Delegation. When a State agency has delegated to an eligible 
recipient agency the authority to select other eligible recipient 
agencies, the eligible recipient agency exercising this authority must 
ensure that any TEFAP commodities are distributed in accordance with 
the priority system set forth in paragraphs (h)(1)(i) and (h)(1)(ii) of 
this section. State agencies and eligible recipient agencies will be 
deemed to be in compliance with the priority system when eligible 
recipient agencies distribute TEFAP commodities to meet the needs of 
all emergency feeding organizations under their jurisdiction prior to 
making commodities available to eligible recipient agencies which are 
not emergency feeding organizations.
    (3) Existing networks. Subject to the constraints of paragraphs 
(h)(1)(i) and (h)(1)(ii) of this section, State agencies may give 
priority in the distribution of TEFAP commodities to existing food bank 
networks and other organizations whose ongoing primary function is to 
facilitate the distribution of food to low-income households, including 
food from sources other than the Department.
    (4) State advisory boards. Each State agency receiving TEFAP 
commodities is encouraged to establish a State advisory board 
representing all types of entities in the State, both public and 
private, interested in the distribution of such commodities. Such 
advisory boards can provide valuable advice on how resources should be 
allocated among various eligible outlet types, what areas have the 
greatest need for food assistance, and other important issues that will 
help States to use their program resources in the most efficient and 
effective manner possible. A State agency may expend TEFAP 
administrative funds to support the activities of an advisory board in 
accordance with Sec. 251.8 of this part.
* * * * *
    6. Section 251.5 is revised to read as follows:


Sec. 251.5  Eligibility determinations.

    (a) Criteria for determining eligibility of organizations. Prior to 
making commodities available, State agencies or eligible recipient 
agencies to which the State agency has delegated responsibility for the 
distribution of TEFAP commodities, must ensure that an organization 
applying for participation in the program meets the definition of an 
``eligible recipient agency'' under Sec. 251.3(d). In addition, 
applicant organizations must meet the following criteria:
    (1) Agencies distributing to households. Organizations distributing 
commodities to households for home consumption must limit the 
distribution of commodities provided under this part to those 
households which meet the eligibility criteria established by the State 
agency in accordance with paragraph (b) of this section.
    (2) Agencies providing prepared meals. Organizations providing 
prepared meals must demonstrate, to the satisfaction of the State 
agency or eligible recipient agency to which they have applied for the 
receipt of commodities, that they serve predominantly needy persons. 
State agencies may establish a higher standard than ``predominantly'' 
and may determine whether organizations meet the applicable standard by 
considering socioeconomic data of the area in which the organization is 
located, or from which it draws its clientele. State agencies may not, 
however, require organizations to employ a means test to determine that 
recipients are needy, or to keep records solely for the purpose of 
demonstrating that its recipients are needy.
    (3) Tax-exempt status. Private organizations must--
    (i) Be currently operating another Federal program requiring tax-
exempt status under the Internal Revenue Code (IRC), or
    (ii) Possess documentation from the Internal Revenue Service (IRS) 
recognizing tax-exempt status under the IRC, or
    (iii) If not in possession of such documentation, be automatically 
tax exempt as ``organized or operated exclusively for religious 
purposes'' under the IRC, or
    (iv) If not in possession of such documentation, but required to 
file an application under the IRC to obtain tax-exempt status, have 
made application for recognition of such status and be moving toward 
compliance with the requirements for recognition of tax-exempt status. 
If the IRS denies a participating organization's application for 
recognition of tax-exempt status, the organization must immediately 
notify the State agency or the eligible recipient agency, whichever is 
appropriate, of such denial, and that agency will terminate the 
organization's agreement and participation immediately upon receipt of 
such notification. If documentation of IRS recognition of tax-exempt 
status has not been obtained and forwarded to the appropriate agency 
within 180 days of the effective date of the organization's approval 
for participation in TEFAP, the State agency or eligible recipient 
agency must terminate the organization's participation until such time 
as recognition of tax-exempt status is actually obtained, except that 
the State agency or eligible recipient agency may grant a single 
extension of not to exceed 90 days if the organization can demonstrate, 
to the State agency's or eligible recipient agency's satisfaction, that 
its inability to obtain tax-exempt status within the 180 day period is 
due to circumstances beyond its control. It is the responsibility of 
the organization to document that it has complied with all IRS 
requirements and has provided all

[[Page 36997]]

information requested by IRS in a timely manner.
    (b) Criteria for determining recipient eligibility. Each State 
agency must establish uniform Statewide criteria for determining the 
eligibility of households to receive commodities provided under this 
part for home consumption. The criteria must:
    (1) Enable the State agency to ensure that only households which 
are in need of food assistance because of inadequate household income 
receive TEFAP commodities;
    (2) Include income-based standards and the methods by which 
households may demonstrate eligibility under such standards; and
    (3) Include a requirement that the household reside in the 
geographic location served by the State agency at the time of applying 
for assistance, but length of residency shall not be used as an 
eligibility criterion.
    (c) Delegation of authority. A State agency may delegate to one or 
more eligible recipient agencies with which the State agency enters 
into an agreement the responsibility for the distribution of 
commodities and administrative funds made available under this part. 
State agencies may also delegate the authority for selecting eligible 
recipient agencies and for determining the eligibility of such 
organizations to receive commodities and administrative funds. However, 
responsibility for establishing eligibility criteria for organizations 
in accordance with paragraph (a) of this section, and for establishing 
recipient eligibility criteria in accordance with paragraph (b) of this 
section, may not be delegated. In instances in which State agencies 
delegate authority to eligible recipient agencies to determine the 
eligibility of organizations to receive commodities and administrative 
funds, eligibility must be determined in accordance with the provisions 
contained in this part and the State plan. State agencies will remain 
responsible for ensuring that commodities and administrative funds are 
distributed in accordance with the provisions contained in this part.
    7. Section 251.6 is revised to read as follows:


Sec. 251.6  Distribution plan.

    (a) Contents of the plan. The State agency must submit for approval 
by the appropriate FNS Regional Office a plan which contains:
    (1) A designation of the State agency responsible for distributing 
commodities and administrative funds provided under this part, the 
address of such agency, and the name of the agency official entrusted 
with binding signature authority;
    (2) A plan of operation and administration to expeditiously 
distribute commodities received under this part;
    (3) A description of the standards of eligibility for recipient 
agencies, including any subpriorities within the two-tier priority 
system; and
    (4) A description of the criteria established in accordance with 
Sec. 251.5(b) which must be used by eligible recipient agencies in 
determining the eligibility of households to receive TEFAP commodities 
for home consumption.
    (b) Plan submission. A complete plan will be required for Fiscal 
Year 2001, to be submitted no later than August 15, 2000. Thereafter, a 
complete plan must be submitted every 4 years, due no later than August 
15 of the fiscal year prior to the end of the 4 year cycle.
    (c) Amendments. State agencies must submit amendments to the 
distribution plan to the extent that such amendments are necessary to 
reflect any changes in program operations or administration as 
described in the plan, or at the request of FNS, to the appropriate FNS 
Regional Office.
    8. Section 251.7 is revised to read as follows:


Sec. 251.7  Formula adjustments.

    (a) Commodity adjustments. The Department will make annual 
adjustments to the commodity allocation for each State, based on 
updated unemployment statistics. These adjusted allocations will be 
effective for the entire fiscal year, subject to reallocation or 
transfer in accordance with this part.
    (b) Funds adjustments. The Department will make annual adjustments 
of the funds allocation for each State based on updated unemployment 
statistics. These adjusted allocations will be effective for the entire 
fiscal year unless funds are recovered, withheld, or reallocated by FNS 
in accordance with Sec. 251.8(f).
    9. In Sec. 251.8:
    a. Paragraph (a) is amended by removing the reference 
``Sec. 251.3(d)'' and adding in its place the reference 
``Sec. 251.3(h)'';
    b. Paragraph (b) is amended by removing the reference ``part 3015'' 
and adding in its place the reference ``part 3016 or part 3019, as 
applicable.'';
    c. Paragraph (c)(1) is amended by removing the words ``U.S. 
Treasury Department checks or'';
    d. Paragraph (c)(2) is amended by:
    1. removing the words ``FNS Instruction 407-3 (Grant Award 
Process)'' and adding in their place the words ``procedures established 
by FNS'';
    2. removing from the first sentence the words ``either'' and ``or a 
U.S. Treasury check pursuant to submission of the SF-270, Request for 
Advance or Reimbursement'';
    3. removing the second sentence; and
    4. removing reference to ``Sec. 251.8(e)'' and in its place adding 
reference to ``Sec. 251.8(f)'';
    e. Paragraphs (d) and (e) are redesignated as paragraphs (e) and 
(f), and new paragraph (d) is added; and
    f. Newly redesignated paragraph (e) is revised.
    The addition and revision read as follows:


Sec. 251.8  Payment of funds for administrative costs.

* * * * *
    (d) Priority for eligible recipient agencies distributing USDA 
commodities. State agencies and eligible recipient agencies 
distributing administrative funds must ensure that the administrative 
funding needs of eligible recipient agencies which receive USDA 
commodities are met, relative to both USDA commodities and any non-USDA 
commodities they may receive, before such funding is made available to 
organizations which distribute only non-USDA commodities.
    (e) Use of funds. (1) Allowable administrative costs. State 
agencies and eligible recipient agencies may use funds made available 
under this part to pay the direct expenses associated with the 
distribution of USDA commodities and commodities secured from other 
sources to the extent that the commodities are ultimately distributed 
by eligible recipient agencies which have entered into agreements in 
accordance with Sec. 251.2. Direct expenses include the following, 
regardless of whether they are charged to TEFAP as direct or indirect 
costs:
    (i) The intrastate and interstate transport, storing, handling, 
repackaging, processing, and distribution of commodities; except that 
for interstate expenditures to be allowable, the commodities must have 
been specifically earmarked for the particular State or eligible 
recipient agency which incurs the cost;
    (ii) Costs associated with determinations of eligibility, 
verification, and documentation;
    (iii) Costs of providing information to persons receiving USDA 
commodities concerning the appropriate storage and preparation of such 
commodities;
    (iv) Costs involved in publishing announcements of times and 
locations of distribution; and

[[Page 36998]]

    (v) Costs of recordkeeping, auditing, and other administrative 
procedures required for program participation.
    (2) State restriction of administrative costs. A State agency may 
restrict the use of TEFAP administrative funds by eligible recipient 
agencies by disallowing one or more types of expenses expressly allowed 
in paragraph (e)(1) of this section. If a State agency so restricts the 
use of administrative funds, the specific types of expenses the State 
will allow eligible recipient agencies to incur must be identified in 
the State agency's agreements with its eligible recipient agencies, or 
set forth by other written notification, incorporated into such 
agreements by reference.
    (3) Agreements. In order to be eligible for funds under paragraph 
(e)(1) of this section, eligible recipient agencies must have entered 
into an agreement with the State agency or another eligible recipient 
agency pursuant to Sec. 251.2(c).
    (4) Pass-through requirement-local support to emergency feeding 
organizations. (i) Not less than 40 percent of the Federal Emergency 
Food Assistance Program administrative funds allocated to the State 
agency in accordance with paragraph (a) of this section must be:
    (A) Provided by the State agency to emergency feeding organizations 
that have signed an agreement with the State agency as either 
reimbursement or advance payment for administrative costs incurred by 
emergency feeding organizations in accordance with paragraph (e)(1) of 
this section, except that such emergency feeding organizations may 
retain advance payments only to the extent that they actually incur 
such costs; or
    (B) Directly expended by the State agency to cover administrative 
costs incurred by, or on behalf of, emergency feeding organizations in 
accordance with paragraph (e)(1) of this section.
    (ii) Any funds allocated to or expended by the State agency to 
cover costs incurred by eligible recipient agencies which are not 
emergency feeding organizations shall not count toward meeting the 
pass-through requirement.
    (iii) State agencies must not charge for commodities made available 
under this part to eligible recipient agencies.
* * * * *
    10. In Sec. 251.9:
    a. The words ``emergency feeding organization'' and ``emergency 
feeding organizations'' are removed wherever they appear in the 
section, and added in their place are the words ``eligible recipient 
agency'' and ``eligible recipient agencies'' respectively;
    b. Paragraph (a) is revised;
    c. In paragraph (c) introductory text, the reference 
``3016.24(b)(1)'' is removed, and in paragraph (c)(2)(i) the reference 
``3016.24(c) through 3016.24(f)'' is removed, and the reference ``part 
3016 or 3019, as applicable'' is added in both places.
    d. Paragraph (e) is removed, and paragraphs (f) and (g) are 
redesignated as paragraphs (e) and (f), respectively;
    e. Newly redesignated paragraph (e) is amended by removing the 
words ``SF-269, Financial Status Report,'' and adding the words ``FNS-
667, Report of TEFAP Administrative Costs,'' in their place.
    f. Newly redesignated paragraph (f) is amended by removing the 
reference ``SF-269'' wherever it appears and adding the reference 
``FNS-667'' in its place.
    The revision reads as follows:


Sec. 251.9  Matching of funds.

    (a) State matching requirement. The State must provide a cash or 
in-kind contribution equal to the amount of TEFAP administrative funds 
received under Sec. 251.8 and retained by the State agency for State-
level costs or made available by the State agency directly to eligible 
recipient agencies that are not emergency feeding organizations as 
defined in Sec. 251.3(e). The State agency will not be required to 
match any portion of the Federal grant passed through for 
administrative costs incurred by emergency feeding organizations or 
directly expended by the State agency for such costs in accordance with 
Sec. 251.8(e)(4) of this part.
* * * * *
    11. In Sec. 251.10:
    a. Paragraph (a) is revised;
    b. Paragraph (b) is amended by adding the words ``commodities 
distributed for home consumption and meals prepared from'' after the 
word ``law,'';
    c. Paragraph (c) is amended by adding the words ``for home 
consumption or availability of meals prepared from commodities'' after 
the word ``foods''.
    d. Paragraphs (d) and (e) are revised;
    e. Paragraph (f) is amended by:
    1. removing the words ``emergency feeding organizations and 
distribution sites'', ``emergency feeding organization or distribution 
site'' and ``emergency feeding organization's or distribution site's'' 
wherever they appear, and adding in their place the words ``eligible 
recipient agencies'', ``eligible recipient agency'' and ``eligible 
recipient agency's'' respectively;
    2. adding the words ``or meal service'' after the word ``foods'' in 
paragraph (f)(1) introductory text;
    3. adding the words ``for home consumption or prepared meals 
containing TEFAP commodities'' after the word ``commodities'' in 
paragraph (f)(1)(ii);
    4. adding the words ``or meal service'' at the end of paragraph 
(f)(1)(iii);
    5. adding the words ``or meal service'' after the word ``foods'' in 
paragraph (f)(2); and
    6. removing the words ``the distribution of commodities by'' in 
paragraph (f)(4);
    f. Paragraph (g) is amended by removing the words ``emergency 
feeding organizations'' and adding in their place ``eligible recipient 
agencies'';
    g. Paragraph (h) is revised.
    The revisions read as follows:


Sec. 251.10  Miscellaneous provisions.

    (a) Records. (1) Commodities. State agencies must maintain records 
to document the receipt, disposal, and inventory of commodities 
received under this part in accordance with requirements of Sec. 250.16 
of this chapter. State agencies must also ensure that eligible 
recipient agencies maintain such records.
    (2) Administrative funds. In addition to maintaining financial 
records in accordance with 7 CFR part 3016, State agencies must 
maintain records to document the amount of funds received under this 
part and paid to eligible recipient agencies for allowable 
administrative costs incurred by such eligible recipient agencies. 
State agencies must also ensure that eligible recipient agencies 
maintain such records.
    (3) Household information. Each distribution site must collect and 
maintain on record for each household receiving TEFAP commodities for 
home consumption, the name of the household member receiving 
commodities, the address of the household (to the extent practicable), 
the number of persons in the household, and the basis for determining 
that the household is eligible to receive commodities for home 
consumption.
    (4) Record retention. All records required by this section must be 
retained for a period of 3 years from the close of the Federal Fiscal 
Year to which they pertain, or longer if related to an audit or 
investigation in progress. State agencies may take physical possession 
of such records on behalf of their eligible recipient agencies. 
However, such records must be reasonably accessible at all times for 
use during management evaluation reviews, audits or investigations.
* * * * *

[[Page 36999]]

    (d) Reports. (1) Submission of Form FNS-667. Designated State 
agencies must identify funds obligated and disbursed to cover the costs 
associated with the program at the State and local level. State and 
local costs must be identified separately. The data must be identified 
on Form FNS-667, Report of Administrative Costs (TEFAP) and submitted 
to the appropriate FNS Regional Office on a quarterly basis. The 
quarterly report must be submitted no later than 30 calendar days after 
the end of the quarter to which it pertains. The final report must be 
submitted no later than 90 calendar days after the end of the fiscal 
year to which it pertains.
    (2) Reports of excessive inventory. Each State agency must complete 
and submit to the FNS Regional Office reports to ensure that excessive 
inventories of donated foods are not maintained, in accordance with the 
requirements of Sec. 250.17(a) of this chapter.
    (e) State monitoring system. (1) Each State agency must monitor the 
operation of the program to ensure that it is being administered in 
accordance with Federal and State requirements.
    (2) Unless specific exceptions are approved in writing by FNS, the 
State agency monitoring system must include:
    (i) An annual review of at least 25 percent of all eligible 
recipient agencies which have signed an agreement with the State agency 
pursuant to Sec. 251.2(c), provided that each such agency must be 
reviewed no less frequently than once every four years; and
    (ii) An annual review of one-tenth or 20, whichever is fewer, of 
all eligible recipient agencies which receive TEFAP commodities and/or 
administrative funds pursuant to an agreement with another eligible 
recipient agency. Reviews must be conducted, to the maximum extent 
feasible, simultaneously with actual distribution of commodities and/or 
meal service, and eligibility determinations, if applicable. State 
agencies must develop a system for selecting eligible recipient 
agencies for review that ensures deficiencies in program administration 
are detected and resolved in an effective and efficient manner.
    (3) Each review must encompass, as applicable, eligibility 
determinations, food ordering procedures, storage and warehousing 
practices, inventory controls, approval of distribution sites, and 
reporting and recordkeeping requirements.
    (4) Upon concurrence by FNS, reviews of eligible recipient agencies 
which have been conducted by FNS Regional Office personnel may be 
incorporated into the minimum coverage required by paragraph (e)(2) of 
this section.
    (5) If deficiencies are disclosed through the review of an eligible 
recipient agency, the State agency must submit a report of the review 
findings to the eligible recipient agency and ensure that corrective 
action is taken to eliminate the deficiencies identified.
* * * * *
    (h) Maintenance of effort. The State may not reduce the expenditure 
of its own funds to provide commodities or services to organizations 
receiving funds or services under the Emergency Food Assistance Act of 
1983 below the level of such expenditure existing in the fiscal year 
when the State first began administering TEFAP, or Fiscal Year 1988, 
which is the fiscal year in which the maintenance-of-effort requirement 
became effective, whichever is later.

    Dated: June 24, 1999.
Samuel Chambers, Jr.,
Administrator.
[FR Doc. 99-17160 Filed 7-7-99; 8:45 am]
BILLING CODE 3410-30-U